Big stores facing a gloomy future
Target now has no book value, says report
DEPARTMENT stores will suffer the biggest fall in sales when e-commerce titan Amazon arrives in Australia, with smaller stores less likely to be affected, a new report says.
According to an analysis by investment bank Morgan Stanley, department stores are more exposed to Amazon and will be less able to adjust to the increased competition.
“The Australian department stores look far more exposed than leading speciality retailers,” Morgan Stanley analyst Thomas Kierath said.
“Australia is overbuilt with department stores, versus other developed markets.”
The Wesfarmers-owned Kmart and Target chains appeared “particularly vulnerable” to a slide in sales, Mr Kierath said in the note for investors.
He reduced the book value Morgan Stanley has on Kmart from $5.3 billion to $3.4 billion.
And he said Target now had no book value at all, compared with a previous value of $900 million.
Morgan Stanley also downgraded its share price target for Wesfarmers from $41 to $36.
Shares in the retail heavyweight fell heavily after the investment bank published the report, closing 3.1 per cent lower at $41.37.
Mr Kierath said department stores had long leases, meaning they could not simply close stores as they became unprofitable.
“We see the Australian department stores losing 15 per cent of sales to Amazon by 2026,” he said.
Morgan Stanley also cut its target price on Myer shares from $1.10 to 80c — 8.5c below the closing price yesterday.
It cut Super Retail — the owner of brands including Rebel, Supercheap Auto and Rays — from $12 to $11, compared with a closing price yesterday of $7.82.
The investment bank downgraded its target price on JB Hi-Fi from $30 to $27, and on Harvey Norman from $4.30 to $3.50. Those stocks closed yesterday at $23.20 and $3.76.
“Amazon effectively is a pure play online department store that is super customer focused and has a very longterm investment horizon, so it doesn’t mind losing money in the build-out phase,” the report said.