Does Amazon’s Australian $9 million ‘Loss’ for 2017 Mean Anything?

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By Published On: August 9, 20180 Comments

It seems to be one extreme or another; Amazon Australia is either breaking records or fizzing entirely. But what's really going on with the marketplace and can we read anything into reports of recent losses?

Amazon Australia posted an $8.9 million loss for the period January 2017 to 31 December 2017 according to company director’s reports filed with the Australian Securities and Investments Commission. Media outlets reported that taking income tax benefits into account, the total loss for the period was $8,924,727 from a revenue of $17,381,136.

Yet the marketplace only launched to Australia on 5 December 2017, so while the period covers almost a year, it only covers a period of 26 days post-launch, with actual operating costs spread over the 2017 year. Regardless of the imbalance of operating costs versus actual time the Amazon Australia site has been live, some are claiming the figures reflect the company’s luke warm entry to Australia and the fact that the marketplace hasn’t been embraced by Aussie consumers.

Its not uncommon for Amazon to report losses for several years in a row when entering new markets. Amazon first traded publicly in 1997 (after being founded in 1994) and didn’t actually turn a profit until 2001. The business model is essentially built on losing a staggering amount of money while it builds its brand and claims its market share. Its international losses ballooned to over US$3 billion in 2017 from $1.28 in 2016. Much of this is related to its operations in India and rival competition.

In response to these claims, an Amazon spokesperson told Power Retail: “Our focus is on continuing to grow our retail offering for Australian customers and investing in our local business, creating jobs and economic opportunity for thousands of small businesses across the country.”

Given the current climate in Australia, are consumers embracing Amazon? “Not yet,” says Trent Disney, Head of E-Commerce at Scooter Hut. “I think both sellers and buyers are probably more watching how it plays out for now. As a buyer, if you haven’t been accustomed to buying through the US marketplace, you’re probably not comfortable with the interface and unsure of exactly what products you’ll be finding on the platform and what sellers are currently listing on there.”

So, what about the negative response Amazon has been receiving from retailers, especially after reports of its 2017 losses? “Personally, I think that some retailers had this expectation that Amazon Australia would immediately have the impact on the e-commerce landscape that they are seeing in North America,” Disney tells us. “I know there were a lot of very strong words being thrown around e-commerce forums prior to launch in regards to how much impact it would have immediately on the Australian retailer.”

“It will take time for the Australian consumer to become accustomed to using Amazon Australia as a part of their purchase search and I think that reflects in the amount of sales sellers are currently seeing on the marketplace, especially in most major industries,” Disney adds. “For us, we don’t view the low sales as a negative (yet), and are expecting to see a positive change in growth of the platform leading into the peak buying periods later in the year.”

But it’s not all doom and gloom for retailers. “We’ve had a positive experience with Amazon to-date,” says Jordan Prainito, Canningvale Managing Director. “We sell through a number of online channels, and other than our own website, Amazon has already become our leading online platform in terms of sales. We’re now expanding into the US through Amazon and we’re seeing encouraging results.”

While retailers seem to be in agreement that results on Amazon were far from instantaneous, there seems to be a shift. This may be to do with awareness from Amazon’s recent marketing efforts or simply from consumer familiarity with the platform. “Sales were slow at first, but we’ve seen steady upward growth, ramping up in the last few months,” Prainito tells us. “We participated in Australia’s first Prime Day last month, and while we expected an uptick in sales, we weren’t expecting to quickly sell out of the majority of our discounted inventory.”

From Canningvale’s experience, it seems shoppers are beginning to embrace the marketplace: “tentatively at first, then steadily and now exponentially.” Canningvale saw a 500 percent increase in sales during Prime Day alone.

This is a sentiment shared by online retailer mbeat which experienced a 200 percent increase in sales during Australia’s first Prime Day. “More holistically, we’re also seeing our sales grow month-by-month as the platform continues to attract new customers and we receive positive reviews, which in turn encourages new customers to purchase from us,” says Howard Chen, Managing Director of mbeat.

In terms of the negative experiences of some retailers, Prainito explains it’s about adjusting strategy. “I can’t speak for other businesses, but we’ve had to hone our offer to match consumers’ expectations when shopping at Amazon,” he says. “Once we got that right sales took off. I expect Amazon will continue to go from strength to strength in this market, it is a company with the wherewithal to hang in there for the long term, which puts its customers first, and doesn’t waste time worrying about the noise. It’s an attitude I personally appreciate and share.”

“I think Australian customers are gradually coming on board with the platform,” says Howard Chen. “It was always bound to take time for Amazon to scale up their local operations and reach, but I think it’s only a matter of time until they are the established marketplace in Australia.

Last month, Amazon revealed strong financial results for Q2, reporting an increase in operating cash flow of 22 percent to $21.8 billion compared with only $17.8 billion in Q2 2017, as well as an increase in free cash flow to $10.4 billion from $9.6 billion.

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