Online commerce and cloud computing phenomenon Amazon Inc could smash the profits of some of Australia’s most popular retailers according to a report by analysts at Citi Group. The Fairfax press is today reporting that the Citi analysts estimate that a substantial move into Australia by Amazon could lead to the earnings of electronics retailer JB Hi-Fi Limited (ASX: JBH) falling by around 23%.

Others considered to be in the firing line include retailers Harvey Norman Holdings Limited (ASX: HVN), Myer Holdings Ltd (ASX: MYR), RCG Corporation Ltd (ASX: RCG) and Premier Investments Limited (ASX: PMV). The Fairfax press reporting that their earnings could be expected to fall around 19%, 18%, 8% and 8% respectively if Amazon were to aggressively expand into Australia.

Originally an online bookstore, Amazon has grown into one of the world’s largest companies in around 20 years of operation thanks to the rise of the internet and online shopping. It’s an excellent example of how digital businesses can build network effects or competitive advantages over rivals by offering the widest range of goods or services to online consumers to choose from.

Currently it ships products ordered online to Australia and it’s no secret that if it were to expand into the country via physical product warehouses then the competitive heat could be turned up on local retailers as consumers are offered more choice and value for money.

According to the Citi report Australians “already spend $500 million to $700 million on all Amazon websites” per year, with potential for that to balloon if the company were to physically operate in Australia.

However, as of today there’s no actual news that Amazon plans to launch into Australia and it’s a global business with plenty of other target markets and growth options to consider. Whether or not the Citi analysts are correct in believing that a physical move into Australia is imminent is hard to know, but it’s by no means a sure thing given Amazon can still grow and save costs just by maintaining its digital presence in Australia.

However, for retail investors the threat of low-cost overseas retailers disrupting Australia’s high-margin local retailers is an ongoing theme. The textbook example being the success of Aldi and Costco in wrecking the margins of supermarkets business Woolworths Limited (ASX: WOW).

Shares in the supposedly blue-chip stalwart have plunged 38% in around two years in a clear warning to investors not to underestimate how high-margin Australian retailers are vulnerable to low-cost overseas competitors.

Amazon’s CEO, Jeff Bezos, is famous for saying “your margin is my opportunity” and it’s not hard to see a scenario where it decimated the margins of an electronics retailer like JB H-Fi.

Australian investors should pay attention to any concrete news that does come out about any plans Amazon may have to push deeper into the Australian retail market.

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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.