MENU

Amazon is opening a giant fulfilment centre in Sydney as problems build for retailers

Credit: Amazon.com

Australian retailers hoping that the threat of online retail giant juggernaut Amazon.com might blow over have been served another warning today after the group announced it’s to open a new 43,000 square metre fulfilment centre in Moorebank, South West Sydney.

The Sydney centre will become operational over the second half of 2018 and will join Amazon’s Dandenong South centre in Melbourne in distributing goods around the major urban centres of Victoria, New South Wales, and beyond.

Amazon reported that in Australia it currently ‘offers customers tens of millions of items from 23 different product categories, including consumer electronics, books, sporting goods, fashion and Amazon devices”.

Just yesterday one of Australia’s most successful retailers in recent times in JB Hi-Fi Limited (ASX: JBH) warned that home appliance sales at its Good Guys stores were suffering from “heightened price competition” and as a result group profit guidance was downgraded, with the stock sent 6% lower.

Other listed retailers facing a battle for market share include Accent Group Ltd (ASX: AX1), Super Retail Group Ltd (ASX: SUL) and the Reject Shop Ltd (ASX: TRS). While the likes of Wesfarmers Ltd’s (ASX: WES) Target and Woolworths Group Ltd’s (ASX: WOW) Big W budget department stores are also now in competition with Amazon.

Even if the above retailers can maintain market share their margins are likely to come under pressure in doing so, as Amazon is well-known for operating on wafer thin margins in attempting to win market share.

It also confirmed it’s planning to launch its Amazon Prime membership service in Australia by mid-2018, which suggests its launch is only a couple of months away.

The other big lesson for investors is how Amazon has taken foot traffic away from shopping centres operated by real estate investment trusts such as Westfield’s Scentre Group Ltd (ASX: SCG) or Charter Hall Retail REIT (ASX: CQR).

Arguably much of the ‘Amazon threat’ is already priced into the shares of Australian retailers, although remember markets are forward looking and the effects of Amazon’s competition may not start to reveal itself on retailers’ income statements until the financial year ending June 30, 2019.

Aside from Amazon local listed retailers are already facing multiple problems from other overseas competition, feeble wages growth and households carrying too much debt on their balance sheets usually related to mortgage borrowing.

When you consider that flat or falling house prices over the next 18 months may take their toll on consumer confidence and household balance sheets then it’s hard to have confidence in the retail space ahead.

As such I’m avoiding retailers, unless I see extreme value offered by one or two of my preferred picks.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tom Richardson owns shares in Accent Group and Amazon Inc.

You can find Tom on Twitter @tommyr345

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 Scentre Group and The Reject Shop 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.