Amazon Effect: Big Trouble Brewing For Myer, David Jones, Target & Kmart

Amazon Effect: Big Trouble Brewing For Myer, David Jones, Target & Kmart
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A new report into the effect of Amazon’s arrival in the $300 billion Australian retail landscape paints a bleak picture for many of the department store chains, with Wesfarmer’s Kmart and Target labelled “particularly susceptible”.

The report by investor management group Morgan Stanley and titled The Amazon effect in Australia reveals as much as $800 million could be stripped from the profits of mainstream stores such as JB Hi-Fi, Harvey Norman And Myer.

Kmart was right in Amazon’s firing line because it sells highly commoditised products with low margins. The average sale at Kmart is reportedly less than $10.

Another of Amazon’s specialities is clothing, which is bad news for the likes of Myer and David Jones.

The report noted that Amazon, whose model is online and super-fast delivery, will generate $12 billion of sales by 2026 with five distribution centres established across Sydney, Melbourne and Brisbane.

It found investors should retail avoid stocks and as added to ASX-100 listed retailers’ woes who are suffering their worst year since 2008.

Commenting on the study, Morgan Stanley’s retail analyst Tom Kierath said: “Since the announcement of Amazon’s entry in Australia, we think the market has mis-priced the impact across Australian consumer sector.

“Amazon’s entry in Australia will have a profound impact on the Australian retailing industry, in our view, as it has had on most markets.

“We have downgraded our industry view to cautious because we believe the Amazon impact will be broad-based.

“What strikes us is that the stock of the largest non-food retailer in the Australian market – Wesfarmers, which generates $22 billion in sales and $2 billion in profits from non-food retailing – has barely moved.

“We think that this market reaction implies that Wesfarmers will be relatively unaffected by Amazon’s entry – we would argue to the contrary.

“But given the success Amazon has had in other markets, we think it’s fair to assume that when it arrives in Australia, the offer will be very competitive,” he said.

 

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