The arrival of US shopping giant Amazon.com to our shores just before Christmas has been as dramatic an event as the Y2K bug. The Amazon Armageddon was supposed to have been unleased on our retail sector but the US challenger forgot to turn up for the battle and this has paved the way for a pretty upbeat profit reporting season for many retailers who should have been cowering. But there are signs that Amazon is finally stirring and is going after some of our best-known retailers in a battle that could bring the devastating impact of the supermarket wars to…
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The arrival of US shopping giant Amazon.com to our shores just before Christmas has been as dramatic an event as the Y2K bug.
The Amazon Armageddon was supposed to have been unleased on our retail sector but the US challenger forgot to turn up for the battle and this has paved the way for a pretty upbeat profit reporting season for many retailers who should have been cowering.
But there are signs that Amazon is finally stirring and is going after some of our best-known retailers in a battle that could bring the devastating impact of the supermarket wars to general retail.
The well-publicised supermarket wars that were sparked by the invasion of German supermarket chain Aldi triggered painful price deflation and margin pressure on the likes of Woolworths Group Ltd (ASX: WOW) and the Coles supermarket chain that is owned by Wesfarmers Ltd (ASX: WES).
The official launch of the Amazon Australia service has put little downward pressure on electronics, household goods and general merchandise, much to the relief of JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN), but that’s about to change.
Morgan Stanley has noted that Amazon Australia is rapidly moving to win market share. The US giant has just launched its Fulfilment by Amazon (FBA) service, aggressively cutting prices on its site, and expanded its product offering in a direct challenge to established Australian retailers.
The FBA is a service where Amazon picks, packs and ships orders from its distribution centre on behalf of vendors. Vendors will benefit from the more cost-efficient logistics service and faster deliveries to customers.
This service could put a dent in other leading online retail companies like Kogan.com Ltd (ASX: KGN) – a current market darling that is trading at near all-time highs.
What’s more, the prices of a range of goods sold on Amazon Australia’s site have fallen dramatically. Morgan Stanley compared current prices on the site to Day 1 of the service on December 4 and found that products in sports, electronics and apparel are 11% to 17% cheaper than JB Hi-Fi, Myer Holdings Ltd (ASX: MYR) and Rebel Sports, which is owned by Super Retail Group Ltd (ASX: SUL).
This contrasts to the price differential at the start when Amazon was 1% cheaper for sports goods but 13% more expensive in electronics and 3% in apparel, noted the broker.
Amazon has also increased the range of products it sells on its site and now offers leading brands like Nike, Asics and Adidas that it didn’t sell before.
But there’s good news for our supermarkets. Amazon is yet to pose a threat to the sector as groceries on its site are only 1% cheaper now versus an average discount of 13% in early December.
Amazon will probably want to win the war on general merchandise before going after the supermarkets.
But this isn’t the time to feel gloomy about stocks. If anything, I think the market will be heading higher till May.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Kogan.com ltd. 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.