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Why ASX retailers are now facing even more competition

Just as you thought that our brick-and-mortar retailers were finally making advances against the online assault, a new battle front is emerging with eBay Australia offering a new service to address the two biggest bugbears for online shoppers.

The US-based shopping platform is about to start offering free deliveries and returns for goods sold on its site for shoppers who pay a $49 a year subscription, according to a news report on Australian Associated Press (AAP).

This is likely to put further pressure on the share prices of our established retailers like JB Hi-Fi Limited (ASX: JBH) and department store Myer Holdings Ltd (ASX: MYR) – even as they are reporting strong sales growth from their online stores.

The new subscription service, which is called eBay plus and kicks in next month, supplements eBay Australia’s current faster delivery service that offers three-day deliveries on some items.

The idea is not new (Amazon has a similar program in the US while Catch Group has a member’s program), but the introduction of such a service will put further margin and cashflow pressure on our brick-and-mortar retailers as they will be forced to offer similar services in order to continue winning market share.

Penetration rates for online shopping in Australia are lagging other countries, according to AAP’s article, and that means there’s plenty of room left for online retail to grow. eBay estimates that only 8% of shoppers make purchases on the Web, which is half the rate in the UK and Korea.

It’s not only JB Hi-Fi or Myer that will feel the pressure. In fact, just about all retailers will be feeling the heat, and this includes auto and outdoor group Super Retail Group Ltd (ASX: SUL) and furniture and electrical retailer Harvey Norman Holdings Limited (ASX: HVN).

It is only a matter of time before Amazon.com launches its version of the service in Australia and free deliveries and returns on all products will soon become an expectation of consumers.

Our more traditional retailers tend to offer free deliveries on orders above a certain amount, like Myer which won’t charge its $9.95 delivery fee on purchases over $100.

These retailers will have to invest more in their online stores to keep pace with the offshore invaders at a time when sales and profit margins are slipping.

This also has implications for our largest supermarkets run by Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES), both of whom only offer free delivery for orders over $100.

This means we could see further consensus downgrades across the sector as analysts factor in the extra costs required.

Thank goodness at least the price of oil is falling.

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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. 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.

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