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Why Australian retailers didn’t sleep well last night

And you thought Solomon Lew was already unhappy?

Coming hot on the heels of soft consumer spending, a high Australian dollar and a recalcitrant Reserve Bank (at least in the opinion of our retail sector who want rates cut), the Fairfax press reported yesterday that Amazon.com might be on the prowl.

Here comes the cavalry

The US books-to-barbecues behemoth is apparently sniffing around for warehouse space, according to yesterday’s report. The article states:

“Property agents say Amazon has made it known in real estate circles that its expansion plans include Australia due to the supply of quality warehouses at attractive rentals.”

There was an additional piece in the same media this morning, quoting John Burford, a Sydney accountant who is a director of the Australian subsidiary Amazon Corporate Services:

”I sense it’s going to be big. ”It’s all very embryonic, there could be things other than marketing. It’s an evolution.”

For booksellers who have seen Australians flock to the US-based business (as well as eBooks), the arrival of the company onto home soil would be a further nail in the coffin, with the company presumably able to offer better prices and a broader range of Australian titles.

It’s not just about books any more

The fear won’t stop there, however. Even a cursory glance at Amazon’s US website shows categories as diverse as electronics, clothes, toys, jewellery, sports and even automotive supplies. It’s doubtful Amazon would try to spread themselves too thinly from day one, but there will be a lot of nervousness right across the Australian retail waterfront. The company even retails groceries!

Amazon likely has negotiated close to the best cost prices in the world from electronics suppliers – and my guess would be their costs are significantly below the likes of JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Limited (ASX: HVN).

David Jones Limited (ASX: DJS)Myer Limited (ASX: MYR) and Premier Investments Limited (ASX: PMV) will spend a lot of time glancing in the rear-vision mirror as they double their efforts to get their own online presence up to scratch, while Woolworths Limited (ASX: WOW) and Wesfarmers Limited (ASX: WES) may struggle to know where to start, with their supermarkets (Woolies and Coles) and discount department stores (Big W and K-mart) will be vulnerable right across the board.

If you’re getting a sense that this is an arms race of sorts, you’re right. Online dominance doesn’t require a store network, or proximity to the shopper, so the internet tends to be a ‘winner takes all’ type of environment. There’s room for niche players, but the company who does it first, and best, will shoot to the front.

Amazon has done exactly that in the US, and now they may be on their way here – cue plenty of sleepless nights ahead for our retailing incumbents.

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Scott Phillips is an investment analyst with The Motley Fool. Scott owns shares in Amazon.com, Harvey Norman, David Jones and Woolworths. You can follow him on Twitter @TMFGilla . The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

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