Australia braces for Amazon impact

Amazon has finally launched in Australia and the retail sector is likely to experience significant hurdles - but Amazon itself will face its own challenges, according to financial services experts.

Amazon Australia country manager Rocco Braeuniger said: "Focusing on customers and the long-term are key principles in Amazon's approach to retailing. By concentrating on providing a great shopping experience and by constantly innovating on behalf of customers, we hope to earn the trust and the custom of Australian shoppers in the years to come."

Australians will now have access to the express delivery - a one-day service in select areas - to the consumer giant's millions of products across multiple categories including books, music, clothing, electronics and whitegoods. They will also gain access to small and medium-sized Australian businesses via Amazon Marketplace.

"Over time, we will create thousands of new jobs and invest hundreds of millions of dollars in Australia," Braeuniger added.

"The result will be an ever-improving customer experience driven by the regular introduction of new products and services that we hope customers will love."

Describing Amazon as a "fearsome competitor on multiple dimensions," Fidelity Australian Opportunities Fund portfolio manager Kate Howitt said that the launch will offer consumers convenience, superior price comparison and more efficient product searching.

"Its purchasing power exceeds that of almost every other competitor in the world. And its required return on capital in its retail business appears to be negligible. So it can sell better, at lower cost and lower profit margin than just about any other entity. Imagine Michael Phelps showing up to the neighbourhood swimming carnival," she said.

At the same time, Howitt said Amazon may also have problems contending with logistical issues that are particular to the Australian market.

"Amazon will face challenges of its own. The ecommerce giant thrives in high population density areas where logistics costs are minimised. But even our highest-density cities of Sydney and Melbourne have long distances between where a new DC can be located and where people live. Delivery services are already bogged down by sluggish traffic between sprawling suburbs. This won't blunt Amazon's impact significantly, but it does mean that real game-changers like same-day delivery may have to wait for the widespread adoption of new technologies such as drones."

Janus Henderson Investors senior analyst Nick Sladen suggested that even though Australian retailers will be feeling the pressure, the Janus Henderson Australian equity team "still retain exposure to the Australian retail sector and look to invest in retailers who can compete with Amazon on price, range and experience. We believe companies like JB Hi-Fi, with a low cost of doing business and low gross margin on a global scale are well-placed to compete in this environment."

Martin Currie Australia consumer sector research analyst Jim Power expressed similar sentiments, arguing that the current price weakness in Australian retail stocks is an "overreaction."

"Amazon has done well in the US and UK against inefficient players, but efficient bricks-and-mortar retailers can compete if they can use their existing scale and supply chain to lower 'last-mile' delivery costs and time. However, they need to react quickly," Power said.

"It is likely that small independent retailers and discount department stores will find it very difficult to compete. However, we see that the good-quality large retailers are likely to survive or even thrive in the face of Amazon."

Read more: USAmazon AustraliaJim PowerKate HowittRocco BraeunigerAmazon MarketplaceAustraliansFidelity Australian Opportunities FundJanus Henderson AustralianJanus Henderson InvestorsMartin Currie AustraliaMelbourneMichael PhelpsNick SladenSydneyUK
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