It was with great interest that I learnt Jeff Bezos, the founder and chief executive of Amazon.com, Inc., visited Sydney for a flying visit earlier this month.
Parts of the Australian media speculated as to why he was here. I'm sure it was more than just to pop in and say hello to his Australian employees at AWS (Amazon Web Services).
Perhaps one of the more intriguing speculations out there is that Mr Bezos was here to finalise the launch of a full local website allowing Australians to buy physical goods from Amazon. Right now, customers of the Australian site are limited to the purchase of Kindle books and Audible audiobooks, and not much else.
Whether he's here for this reason or not, it's perhaps prudent to start worrying if you're a shareholder of any of the major listed discretionary and consumer staples retailers here in Australia, including Myer Holdings Ltd (ASX: MYR), Harvey Norman Holdings Limited (ASX: HVN), JB Hi-Fi Limited (ASX: JBH), Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES).
Given Amazon's long-term propensity to sacrifice earnings for sales growth and market share, shareholders of the aforementioned companies will have a lot to worry about in addition to the competitive pressures currently being applied by the likes of Aldi and Costco.
In fact, the longer-term picture for Australian retail looks to be increasingly competitive, with margins under sustained pressure.
Back in March this year, Richard Goyder, the group managing director of Wesfarmers (and owner of Coles) told a retail forum in Sydney that his biggest fear was not the competitive threat from Australian retailers, but tech companies such as Amazon. Mr Goyder stated that Amazon will 'eat all our breakfasts, lunches and dinners', unless Australian retailers become more innovative.
And he should worry too.
There's also the matter of Amazon Fresh, which allows Amazon customers in the US access to free same-day and early morning delivery of not only fresh grocery products, but thousands of other Amazon items.
Now, of course, there are huge logistical challenges and up-front costs in establishing a business such as this here in Australia, but Amazon definitely has the management and financial resources to build such an operation if they choose to.
It's interesting to note too, although Amazon hasn't confirmed if Amazon Fresh will be established in Australia, there was a job advertisement posted by Amazon Support Services Australia Pty Ltd back in late 2014 for a Software Development Engineer in Brisbane to 'help revolutionise the grocery shopping experience [for Australian consumers of Amazon Fresh]'.
I have no doubts that Amazon has plans for the Australian market and I think there's now 'movement at the station'. The incumbents will have to be prepared.
As a consumer myself, I'm pretty excited that my retail options will continue to expand, but as an interested observer of the Australian retail industry, I won't be buying shares in any of the retailers I referred to above as the risks for these companies rise.
As Mr Goyder himself alluded to, Australian retailers are going to have to really lift their game if they're going to have any chance of minimising the effects of increased competition. The Aldi 'Blast Zone' is affecting Australian retailers' margins now, but I really don't think you've seen anything yet.
If you're an owner of shares in Australian retailers today, do monitor your investments and continue to watch this space very closely.
