Last year and in January this year, we published a couple of reports on Amazon’s entry in the Nordics. With the recent launch of Amazon Prime, we found it suiting to re-visit the topic. Doubts have been raised with regards to Amazon’s success over the past year, but the Swedish retail scene needs to take their entry seriously.
Amazon’s launch – what has happened so far?
Since Amazon’s launch in Sweden in October last year, retailers witnessed a negligible impact on sales. Swedish news outlets reported a limited Amazon effect with embarrassing translation mistakes, limited payment options etc. However, it is not surprising that incumbent retailers are only seeing a small impact on sales, given that the overall e-com market is growing, and the fact that Amazon is not necessarily number one in any specific category yet. Amazon does not have to be either: with the breadth of the offering, a #2-5 spots in each category will be enough to gain the local scale required to become #1.
Furthermore, analyzing digital channels shows signs of a market entry that is not exactly a failure.Amazon.se web traffic reached 10m visitors within 2 months and has increased steadily since, beating Swedish peers in Electronics, Clothing and Grocery with average visitors of 3.8m, 1.9m and 4.4m respectively. They hit an impressive mark in March, becoming the retail website in Sweden with the most monthly visitors, and has averaged 13m monthly Swedish visitors since. Even considering their higher website bounce-rate (70% vs. 45% peer average), Amazon is beating most peers in traffic.
App usage also speak of a strong traction for the retailer, where the Amazon app currently is the fifth most popular shopping app in Sweden by active users, gaining five spots and currently trailing Klarna, Blocket, Pricespy and Tradera. We expect the app to keep on growing with the launch of Prime, as it is especially popular with members of the loyalty program.
Prime as a growth engine
In other markets, such as Australia, Portugal and Brazil, Prime was also launched within a year of entry. In Turkey it was launched within 2 years. In Portugal and Brazil, the number of visitors increased 10% and 40% respectively, and in Turkey they experienced an impressive 3x permanent increase in traffic following the launch of Prime.
In the US, where over 60% of households are Prime members, the importance of the loyalty program in driving sales and profits is undeniable. The average Prime member purchases 2-3x more compared to the non-Prime member on Amazon.com, and Prime households have twice the gross margin than non-Prime ones do.
In our previous report we forecasted an Amazon market share of 5-10% in the Nordics by year 2025 – growing from 2% before market entry. If we were to see a similar uptick in traffic of 40% in Sweden, it only reinforces our original market share estimates and the likelihood of Amazon becoming the largest Nordic retailer.
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This is only the start – what to expect going forward
Coming in at 59 SEK a month (~64 USD/year), the price of Prime in Sweden is almost half compared to the US and the UK, where consumers pay ~115 USD/year. In Sweden, Prime includes free delivery within 2 days, member discounts, Prime Video and Prime Gaming. In the US or the UK, the offer also includes, for instance, Amazon Music and same-day delivery guaranteed in some of their hubs, where the company is competing in a race of hours.
An important unlock in improving the delivery offering, as is the case for all competitors, is a more competitive logistics solution on the local market. In Australia, Amazon is currently finalizing the largest and most modern Australian robotics warehouse in Sydney, 3 years after their launch of Prime.
The Swedish market has matured quickly over the last years, in the sense that we have already come a long way in LogTech with popular services such as Airmee, Budbee and Instabox. By partnering up with Airmee, Amazon shows they are aiming to further improve their delivery offering to match incumbent retailers.
In addition to stronger delivery options, it remains to see what Amazon will do next. In our previous report we noted that Amazon Australia launched Pantry (groceries) early on and planned to enter the Pharmacy business. In Sweden, such moves will face some of the strongest category leaders in the market.
Swedish retailers need to react now
We have already seen some early responses from a few leading retailers in Sweden, with, for example, the launch of free delivery on all orders or new rivalling marketplaces, but more are expected to follow.
In the US, Amazon’s leadership has pushed retailers to adjust drastically. For instance, delivery times have been pushed down continuously (see image below) and retailers are stepping up their customer experience to differentiate, both of which impacts profitability. In Sweden, where we already have a number of retailers leading the way on delivery times, we expect Amazon to be a player which further increases the pace of change and forces the laggards in the industry to adjust their offering.
The future of retail will be more of a “winner takes it all” landscape, where only those who meet tough customer expectations can survive. The slowest to react will have difficulties catching up. To launch Prime in Sweden two months before Black Week can only be seen as a strong step forward in Amazon’s market strategy, and Swedish retailers should expect fiercer competition going forward.
David Sandberg, Managing Director & Partner at BCG in Sweden, with Nanna Gelebo, Partner at BCG in Sweden and Emil Stamp, Managing Director & Partner at BCG in Denmark.
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