Department stores in firing line

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, Australian department stores are more exposed to Amazon.

“The Australian department stores look far more exposed than leading speciality retailers,” Morgan Stanley retail analyst Thomas Kierath said. “Australia is overbuilt with department stores versus other developed markets.”

The Wesfarmers-owned Kmart and Target chains looked “particularly vulnerable” to a slide in sales, Mr Kierath said. 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. Wesfarmers shares fell $1.33 to $41.37 yesterday.

Mr Kierath said department stores had long leases, meaning they could not simply close stores as they become unprofitable. They also generate a disproportionate percentage of online sales from apparel – a category where Amazon is successful.

“We see the Australian department stores losing 15 per cent of sales to Amazon by 2026,’’ he said.