Not yet Amazon Prime time, Australia retail sell-off overblown?

SYDNEY/SAN FRANCISCO: Since Amazon.com Inc said in late April it would bring its Marketplace for third-party sellers to Australia, shares of leading bricks-and-mortar retailers have tumbled on fears their growth prospects would be hit.

More than US$ 3 billion, or over four per cent, has been wiped off the collective market value of six companies - Wesfarmers Ltd, Woolworths Ltd, JB Hi-Fi Ltd, Harvey Norman Holdings Ltd Super Retail Group Ltd and Myer Holdings Ltd – and Morgan Stanley analysts predict Amazon’s entry will knock two to 15 per cent off what their annual sales would have been by 2026.

But some fund managers, who have since increased their retail holdings, reckon the sell- down was overdone, and dire warnings in some media that the US$ 460 billion US e- commerce giant would “destroy” Australia’s traditional retail industry were overblown.

That’s largely based on Amazon making no mention - yet - of when it might sell its array of goods directly in Australia, let alone launch its star business: the US$ 99 a year subscription shopping club Prime, whose members, Amazon says, buy more goods, more often.

That contrasts with other countries, including Spain and Mexico, where Amazon launched many product categories and Marketplace at around the same time.

The logic of not initially introducing Prime to Australia seems straightforward, logistics experts say.

Prime’s big selling point in most markets is that it guarantees delivery of ordered goods within 48 hours. Australia’s sheer size puts this, literally, out of reach for now.

While most of the country’s 24 million population live on the coastal fringes of an island almost the size of the United States, there’s little infrastructure in place to deliver packages to the more remote western and northern states.

“Given they haven’t set up yet, and Australians already use the internet quite a lot for some purchases, it’s a bit of an over-reaction,” said Anton Tagliaferro, investment director at Investors Mutual Ltd, which has since increased its stake in department store chain Myer.

Similarly, fund manager Martin Currie Australia has raised its stake in electronics retailer JB Hi-Fi to 7 per cent after Amazon’s announcement.

Companies like JB Hi-Fi “are very dominant, and profitable retailers in Australia with leverage to population growth and housing will be well placed when Amazon begins to operate,” said Reece Birtles, the fund manager’s chief investment officer.

Shares in Wesfarmers, which owns the Coles grocery chain, have slipped 8 per cent since April amid concerns about the impact of Amazon’s arrival on its Kmart and Target discount department stores. For grocery, Amazon has struggled to bring produce sales online in the US.

James McGlew, executive director at Argonaut Ltd, which owns Wesfarmers stock, said there was “still a case to be made for owning Wesfarmers in the longer term, but we’re cognitive of standing in front of trains and trying to stop them.”

Wesfarmers, which last month cited market conditions for cancelling a spin- off listing of its Officeworks stationary business, has said its 4,000-store network leaves it well placed for when Amazon arrives.

Myer CEO Richard Umbers said in an email, “We are firmly focused on delivering the New Myer strategy, which we believe is the best response to any competitor,” noting an emphasis on “memorable in-store experiences”, popular brands and investment in a “strong growth” omnichannel offer.

A spokeswoman for JB Hi-Fi declined to comment.

Amazon, which is advertising dozens of jobs in Australia, referred to a statement it made in April that it was planning a retail business in the country with low prices and fast delivery, without offering more details.