Here’s Why Amazon Is Expanding In Australia

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Reports suggest that Amazon (NASDAQ:AMZN) is expanding its retail offerings in Australia and the company plans to build a fulfillment center in Brisbane, Sydney or Melbourne to support this expansion. Amazon launched its web services business in the country in 2012 and later opened a Kindle Store on its e-commerce platform in the region. The company now plans to expand into retail and bring its marketplace model to Australia. According to Morgan Stanley, Amazon’s current sales in Australia amount to around $1 billion through overseas shipments, and the company is now looking to deliver locally from Australia and focus on local goods.

Steady Revenues, High Growth Potential

According to a study by Deloitte, Amazon is the 10th top global retailer based on revenues generated in 2015. Its huge size and deep pockets give the company a competitive edge in Australia. Other Australian retailers may have difficulty competing with this scale. However, Chinese e-commerce giant Alibaba is looking to establish itself in the region and could give Amazon some strong competition.

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The e-commerce market in Australia is strong and growing rapidly, and a strong economy and high internet penetration is fueling e-commerce growth. According to eMarketer, Australia’s total e-commerce sales in 2017 are forecast at $32 billion, making it one of the top ten e-commerce markets globally. Around 65% of people in Australia reportedly shop online, and this figure is rising. This makes Australia an attractive market for Amazon with its wide diversity of products and smart customer retention initiatives, even if it’s unlikely to move the needle much in terms of Amazon’s total revenues in the near term. In 2017 we expect Amazon to generate revenues of nearly $170 billion. For perspective, if Amazon were able to eventually capture a 20% share in Australia’s e commerce market, it would be generating around $6 billion from the region, which is less than 5% of its estimated 2017 revenues.

Still, Australia is an appealing market for Amazon, and with high e-commerce growth in the region the company should be able to generate some steady incremental revenues. And while it may not drive significant growth for the company relative to its overall revenues, it fits well in Amazon’s overall strategy of expanding further globally.

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