US-based e-commerce giant Amazon officially launched the Australian arm of its operations on December 5. Whereas in the past Australians were only able to stock up on kindle e-books and audiobooks through the Amazon.com website, they now have access to 23 different categories of products, ranging from electronics to clothing to baby items. And in the lead up to the launch the big Australian retailers were already getting jittery. Some analysts were anticipating that prices would be 30% cheaper on Amazon than elsewhere, which prompted Harvey Norman Holdings Limited (ASX: HVN) boss Gerry Harvey to suggest that if…
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US-based e-commerce giant Amazon officially launched the Australian arm of its operations on December 5. Whereas in the past Australians were only able to stock up on kindle e-books and audiobooks through the Amazon.com website, they now have access to 23 different categories of products, ranging from electronics to clothing to baby items.
And in the lead up to the launch the big Australian retailers were already getting jittery.
Some analysts were anticipating that prices would be 30% cheaper on Amazon than elsewhere, which prompted Harvey Norman Holdings Limited (ASX: HVN) boss Gerry Harvey to suggest that if Amazon pursued a “zero percent margin” strategy it could be seen as “predatory pricing” – challenging regulators like the ACCC to take notice.
At its AGM on November 23, Woolworths Group Ltd (ASX: WOW) promised to “be obsessive about [their] customers”.
They even tacitly threatened smaller retailers who might chose to sell their products through Amazon, claiming that the US company could slash the prices of their products, trimming their margins and making established Australian sellers less inclined to stock them in future.
eBay Australia and New Zealand managing director Tim MacKinnon went even further, suggesting that small local retailers were actually risking the integrity of their brand by choosing to sell through the Amazon Marketplace.
If Amazon noticed that sales of a certain retailers’ products were high, MacKinnon argued, it could potentially manufacture its own version of the product for its private label range and sell it at a discounted price.
Only days before the Amazon launch, JB Hi-Fi Limited (ASX: JBH) increased its range of fast delivery options for online customers, offering new same-day courier services – even promising to deliver items within 3 hours to some urban areas.
So after all the hype, how did the launch actually go?
Surprisingly, the reaction was pretty muted.
After all the talk of slashed prices, it turned out that many products were not materially cheaper via Amazon, and customers could actually still get a better deal on some items at JB Hi-Fi or Harvey Norman.
Analysts from Citi and Morgan Stanley both said the launch underwhelmed, criticising Amazon for its lack of significant pricing discounts and saying the product range was disappointing.
It even turned out that Officeworks, a subsidiary of Wesfarmers Ltd (ASX: WES), offered a better price on Amazon’s own Kindle Paperwhite e-reader than did Amazon itself.
Amazon, on the other hand, put a positive spin on the launch.
It claimed it to be the biggest in terms of numbers of first day orders in the company’s history. Though readers should probably take that claim with a grain of salt – Amazon’s US and UK operations both started in the 90’s, when the e-commerce marketplace was nowhere near the size it is today.
Its most recent launch was in the Netherlands in 2014, a country with a lower population than Australia’s.
The share prices of both JB Hi-Fi and Harvey Norman jumped over 6% on the day Amazon launched, showing that the market shared the view that the U.S. company might not be as disruptive to the Australian retail industry as was initially thought.
The prices of both stocks have fallen off slightly since then, but are still up overall since the Amazon launch.
The Woolworths share price has had a pretty good few months, up over 11% since the beginning of October – and its merry path upwards was not really troubled by Amazon’s launch. It closed at $27.35 on Friday.
And eBay also recently stated that Amazon has not yet stolen any traffic away from its website.
The Amazon launch was not really the instant game-changer many analysts were anticipating.
But it also may not quite be time for executives at JB Hi-Fi or Harvey Norman to breathe a sigh of relief. Amazon recently announced it would be having a massive Boxing Day sale, with discounts of up to 50% as well as special “lightning deals” where certain products’ prices are reduced even more heavily for brief windows throughout the day.
Currently, Amazon is still finding its feet in the Australian retail sector. But Macquarie Equities analysts nonetheless expect it to eventually capture a similar percentage of online sales here as it has done in the UK, where it enjoys a 25% market share.
It will also put pressure on established retailers like JB Hi-Fi and Woolworths to invest more money to establish a greater online presence.
Although initial reaction to the Amazon launch has been muted, I’m personally still not game enough to invest in anyone trying to directly compete with Amazon right now. The real competition is probably only just beginning to heat up.
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Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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.