Forget Aldi, Amazon is coming

Woolworths Limited (ASX:WOW) and Wesfarmers Ltd (ASX:WES) face a huge threat if Amazon sets up shop in Australia in 2017

| More on:
Amazon .com

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Retailers won’t have to worry about discount supermarket retailer Aldi next year, because the largest US retailer is setting up shop in Australia in 2017.

No, not Walmart, Amazon.

According to Justin Breitling, chief investment officer at Watermark Funds Management, “They will be dropping distribution centres and performance centres in every state next year,” he told the Australian Financial Review (AFR).

“They will be doing general merchandise, and they will be doing fresh as well. They will also be putting physical stores on the ground which I don’t think anyone knows about. These will mainly be in regional areas because fulfilment is a lot harder in regional areas than in the cities.”

He added, “We spoke to the guy rolling out Amazon’s business here in Australia and in his words: ‘We are going to destroy the retail environment in Australia’.

According to the AFR, Breitling refused the name the person at Amazon that gave the special briefing in the past week and who is responsible for rolling out the Australian strategy.

Amazon is expected to launch in September 2017, having pushed the time table back six months so they could do fresh at the same time as the general merchandising offer. It’s not just groceries that Amazon is a threat to. Kmart, Target and Big W would all be put under enormous pressure as well.

Breitling argues that every retailer in the US is priced relative to the perceived risks to their business from Amazon. According to the AFR, Amazon captures half of all e-commerce sales in the US.

Supermarket retailers Coles – owned by Wesfarmers Ltd (ASX: WES) – and Woolworths Limited (ASX: WOW) have been fighting back against discounter Aldi by cutting their margins and improving their offerings. Aldi too is expanding its fresh produce offering which it feels has been neglected since the retailer arrived in Australia. Getting that right could see Aldi achieve as much as 15% market share.

Coles and Woolworths have 33.2% and 36.3% market share respectively, with Aldi on 12.5% and Metcash Limited’s (ASX: MTS) IGA on 9.8% according to the latest data from Roy Morgan Research.

But the retailers may all lose market share if Amazon does setup shop and is as successful as it has been in the US. That’s not guaranteed, though. Taking on the incumbents is difficult as eBay found out in New Zealand and eventually left the market all to Trade Me Group Ltd (ASX: TME).

Motley Fool writer/analyst Mike King owns shares in Woolworths and Wesfarmers. You can follow Mike on Twitter @TMFKinga 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »