Amazon Australia sales exceed $1b
Sue MitchellSenior reporter
Amazon Australia’s sales have fallen well short of initial market forecasts but its expansion over the past three years has helped accelerate the shift to online shopping and forced local retailers to lift their game.
Three years after Amazon set up shop in Australia, the e-commerce juggernaut’s sales doubled to more than $1 billion in 2020 as consumers locked down at home during the pandemic and shopped online for furniture and homewares, electronics, beauty products, sporting and fitness goods, books, games and toys.
According to accounts lodged with the corporate regulator, Amazon Commercial Services clocked up revenues of $1.21 billion in the 12 months ending December.
This was almost double the $562.1 million in revenue generated in calendar 2019 but fell well short of analysts’ expectations when Amazon opened its online store in Australia in December 2017.
At the time, analysts expected Amazon to reach $3.5 billion to $4 billion in sales by 2020 and take significant share from incumbents such as JB Hi-Fi, Harvey Norman, Super Retail Group, Kogan.com and Wesfarmers.
“Expectations were high early on but as we looked at the range they entered the market with and the development of that range, it was clear early on it was going to be a slower ramp-up than we thought before they entered,” said Credit Suisse analyst Grant Saligari.
Existing retailers invested significantly to lift their game and keep up with the consumer shift to online shopping, which now accounts for about 11 per cent of total retail spending, up from 5 per cent in 2017.
“Online has necessitated investment but for a number of retailers it’s turned out to be a profitable venture and I don’t think Amazon would be negatively impacting profitability yet – that’s not to say it might not in future,” Dr Saligari said.
Strong subscriptions growth
Amazon’s sales growth during 2020 mirrored that of other pure-play online retailers such as Kogan.com and Temple & Webster, whose sales more than doubled during the pandemic.
Amazon’s online store accounted for almost half group revenues as net sales rose to $511.3 million, up from $218.9 million previously.
Revenue from third party marketplace sellers rose to $126.1 million from $54.9 million. This is believed to be commission revenue only. Gross marketplace sales are likely to be much higher, possibly more than $600 million, which would take Amazon’s gross sales to more than $1.6 billion.
Revenue from Amazon’s US parent – believed to be sales from the US website – rose to $371.4 million from $247.5 million.
The accounts also suggested strong uptake of Amazon Prime and other subscription services, with subscription revenues rising to $90.9 million from $35.4 million.
Despite the surge in revenues, Amazon Australia lost $3.8 million net (the previous net loss was $4.7 million) after providing for $11.1 million in tax ($2.5 million tax in 2019). It actually paid $18.3 million in tax for the year.
Marketing costs rose to $156.6 million from $110.9 million and employee expenses, including stock-based compensation expenses, soared to $130.5 million from $84.2 million as staff numbers rose to 989.
“Over the past year, our focus has remained on the health and safety of our people, helping customers stay home and safe by delivering products directly to their door, and supporting local communities and selling partners during this challenging time,” an Amazon spokeswoman said.
Investment bank UBS now expects Amazon Australia’s sales to quadruple to more than $4 billion by 2023, taking into account its distribution centre expansion plans, current sales per square metre of distribution space and its growth in other similar markets.
Amazon opened its fourth Australian distribution centre in Brisbane in September and is building a $500 million robotic distribution centre in Sydney – its second in the city – to speed up deliveries and double capacity. The centre will open this year and be manned by about 2000 robots.
UBS said 38 per cent of shoppers surveyed purchased from Amazon in 2020, up from 25 per cent in 2019 and 22 per cent in 2018, and about 50 per cent of shoppers said they were likely to purchase from Amazon again (up from 38 per cent in 2019).
But UBS says Amazon is less of a threat to listed retailers than was initially feared.
If Amazon’s sales reached $4 billion, its share of total retail sales would be about 1 per cent (2 per cent of non-food retail) and most of its initial growth was likely to come from market leader eBay, which has annual sales of about $6 billion.