Hi guys! How’s everyone doing!
What’s wrong TheFrugalSamurai?
Excuse me, I’ve been knocked out and about with the flu all week. What’s that? Of course it’s not man flu! It’s a Jen-u-wine flu.
I was going to continue the short series on my experiences of losing $40,000 but a couple of days ago something exciting happened here in Australia – Amazon launched their online store.
ABOUT DAMN TIME.
Here in Australia – retail is suffering, rising rents, lower consumer spending, flat wages growth and soaring house prices have coincided with the toughest trading conditions for many years.
But can you blame us? For years we have had to put up with duopolies and monopolies across industry sectors. David Jones/Myer, Coles/Woolworths, the big 4 banks – all setting their prices at take it or leave it rates.
Then came the first of the big household disruptors – ALDI, which has ingrained itself in our psyche and continued to increase its share of the supermarket pie sitting around 13.2% as of this year.
Did you see what happened when Coles and Woolworths began to take notice of ALDI? PRICE WARS.
Yeah that’s right, we all learnt in Economics 101 that one of the fundamental factors to influence demand is price. When you want to increase demand, the easiest way is to lower the price.
This also happened when IKEA came to town – local furniture retailers such as Nick Scali and Domayne dominated TV ad times, tried to compete initially and where are they now?
You can’t really compete on price with a global conglomerate which has better efficiencies and more streamlined processes up and down the supply chain. Especially one which is tailored for the mass market with solid quality products at affordable prices.
This brings us to Amazon, the latest entrant to our shores. I know a lot has been said already about how quickly they can gobble up market share – but it’s kind of scary when you factor in just how big this company is and it’s potential reach. Here let me explain:
Look at that revenue growth.
Amazon’s model is to enter the local market and damnit man if I won’t be the cheapest operator out there, profit be damned. It’s about grabbing a piece of the pie through scale and low-prices.
Yes that’s right – they don’t care about profits, in fact it’s only in the last couple of years where they have recorded any meaningful profits despite it trading since 1994.
That’s not to say that it doesn’t generate revenue (see below), it’s just they reinvest so much cash into the business to make sure it continues to be one streamlined muthafucka that there is not much profit to speak of (revenue is income or sales, profit is revenue minus expenses in case you’re wondering).
Hey, can I sell on Amazon?
Yes you can, which is what makes it so over-reaching, Amazon acts as a middle man who helps to grease the wheels of any transaction between you and you and you “points to the audience”.
Many e-commerce sellers also use Amazon to sell their own products via Amazon’s fulfilment processing centres – large warehouses where Amazon store the goods for you and assist with delivery and customer service. Your customer orders via your website and Amazon ships it out to them on your behalf.
When barriers of entry to sell on Amazon are so low, competition is fierce… HEY what happens when competition is fierce and you want to increase demand? Drop the price people! When prices drop, demand increases, more people buy, more people want to sell – it’s a vicious cycle.
Their company culture is ruthless.
This is a controversial topic because much has been said about how Amazon treats their employees, seems very much the work/life balance is skewed towards one side here. Point being though, Amazon retains the best employees, the ones which dedicate their entire life around making Amazon great.
We are so often told that a company is only as good as it’s people – so if the best people remain to work at a company which wants to make itself the best, well…
Similarly look at what Jack Welch did with GE in the 80s, Welch was notable for popularising the “rank and yank” policy i.e. each year he would fire the bottom 10% of his managers, regardless of absolute performance. GE had 411,000 employees in 1980 and 299,000 in 1985…
Now of course, Welch is widely regarded as one of the best CEO’s in recent history.
Finally, get off your ass.
Amazon’s entry should serve as a wake-up call to the big Aussie retailers out there.
It’s so obvious that the average consumer cannot afford the high margins charged by our standard retail outlets in this day and age when we can find a comparable product online for 20%, 30% sometimes 40% off.
Do you remember how good it feels to receive a good deal? Of course you do!
I’m excited and hopeful to see how both Amazon and our local companies react to this newest player to our shores. Maybe some of our dinosaur companies finally catch up to the digital age!
Now, if only a couple of banks could do the same.
What do you think? Did you enjoy this post? Please help me out if you enjoyed this and click on the little “follow” button at the bottom right and be a follower! Thank you greatly!