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Amazon.com, Inc. (AMZN) Could Actually Lose Money in Australia

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Amazon.com, Inc. (NASDAQ:AMZN), which is becoming the everything store, announced plans to open its first warehouse in Australia. The online retailer is preparing to build its first Australian warehouse in Melbourne. Australia is the world’s 12th-biggest economy, home to 24 million people. The e-commerce giant could face problems in the country where people prefer shopping at malls rather than online.

Amazon is trying to repeat its US success in overseas markets but its efforts aren’t very successful so far – in terms of profitability. During the second quarter, the online retailing giant booked a loss of $724 million in international operations, versus $135 in the same quarter a year ago.

Amazon’s First Australian Warehouse

Reuters reported Thursday that Amazon has chosen a site in an industrial area near Melbourne to build its first warehouse in the country. The company has named Rocco Braeuniger, its director of consumables for Germany, to run the company’s Australian operations as a country manager.

Melbourne

Melbourne, the second-most populous city in Australia and Oceania, seems to be a perfect choice for the location of Amazon’s warehouse. The Melbourne Airport is the second busiest in Australia and the Port of Melbourne is the country’s busiest seaport for containerized and general cargo. The city is also home to Australia’s most extensive freeway network and has the world’s largest urban tram network. Further, Melbourne is also good choice for Amazon’s warehouse due to its proximity to Australia’s east coast, where four-fifths of the country’s 24 million population lives.

The warehouse will be located about 26 miles from Melbourne and would store “hundreds of thousands of products for delivery to customers across Australia,” Robert Bruce, a local Amazon executive, told Reuters.

Amazon.com, Inc. (NASDAQ:AMZN) didn’t disclose when it will begin or complete its warehouse in Australia. Additionally, the online retailer didn’t mention plans to launch its Prime service to the country.

Earlier this year, Gizmodo reported that Amazon plans to bring its Australian website online by the end of 2018.

What Challenges Amazon Could Face in Australia

Amazon is expected to face ‘unprecedented’ challenges in Australia.

Australians prefer to shop in markets and malls and online shopping isn’t very popular in the country. Amazon will have to come up with a strategy to encourage more people to buy products from its online store. Amazon Prime Now service could be a big thing in the Australian e-commerce market and could help the retailer encourage people to switch to online shopping. However, it’s not clear whether Prime Now will be launched in Australia.

Meanwhile, Gary Mortimer, an associate professor at Queensland University of Technology’s business school, told The Seattle Times that Amazon will need to address issues related to the delivery of goods. He said that the cost of serving Australia’s biggest cities “will undermine” the online retailer’s “high-volume, low-margin model.”

“When they arrive, the distance is going to be a problem,” Mortimer told the Times.

It is still unclear whether Amazon will run its own shipping and delivery network or use third parties for delivery in Australia.

Amazon has already told its shareholders that the company’s international business may not be profitable.

“It is costly to establish, develop, and maintain international operations and websites,” the retailing giant said in a report. “Our international operations may not be profitable on a sustained basis.”

Despite challenges, Australia is an important market for Amazon. It is a key shipping hub from where the online retailer can better serve Southeast Asia, which is expected to be the next big market for e-commerce in Asia-Pacific. A research by Google and investment firm Temasek Holdings predicted that e-commerce sales in the region will grow to $88 billion in 2025.

Shares of Amazon.com, Inc. (NASDAQ:AMZN) are up more than 31% so far this year. During the last 12 months, the stock has gained over 30%.

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Muhammad Nadeem

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