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Amazon Prime Day comes to Australia in warning shot to retail investors

Australian bargain hunters will be chuffed to hear that online shopping platform is offering cut price goods across its local website over the next 36 hours after launching its answer to Christmas in the form of its first ever Amazon Prime Day in Australia.

Amazon Prime is the group’s members only service that lets shoppers get discounted prices in return for a minimum monthly subscription fee.

Amazon will deliver the goods ordered free of charge within two business days as part of its Amazon Prime service that has helped it build a moat globally as members tend to prefer it over other traditional retailers.

Amazon helps build this competitive advantage over bricks-and-mortar retailers, by offering its Prime members free access to its vast digital reach via free movies, games, TV shows and e-books all thrown in as part of the membership deal.

In Australia you can now sign up for a Prime membership for just $3.99 a month until 31 January 2019 and $6.99 thereafter with no minimum lock in period.

Analysts and talking heads in the business media spent much of 2017 talking up the potential of Amazon to decimate the local retail industry, although its hotly-anticipated December 2017 launch has not translated into any tangible signs of big hits to retailers’ bottom lines, as yet.

Investors will scrutinise the financial statements and same-store sales trajectories of retailers like Myer Holdings Ltd (ASX: MYR), JB Hi-Fi Limited (ASX: JBH), Breville Group Ltd (ASX: BRG) and Accent Group Ltd (ASX: AX1) for any sign of a loss of market share or sales. Moreover, even if these retailers can defend market share it might be at the expense of profit margins that are critical to their financial performance.

Arguably though the Amazon threat was more than priced into the valuations of most retailers over the course of 2017, with many of them falling from 10% – 50% partly in response to the possibility of falling market share and margins after Amazon’s arrival.

One piece of good news for local retailers recently was Amazon’s decision to block Australian shoppers from accessing its overseas websites in response to new government legislation applicable from July 1 2018 that Amazon and others must add the 10% GST to all goods bought overseas.

The decision of Amazon to stop Australians shopping on its overseas websites in response to this legislation means far less Amazon products will be available to local shoppers in a small win for local retailers.

Still given the domestic macro backdrop of falling house prices and feeble wage growth the discretionary retail sector in Australia is facing enough problems aside from the threat of steadily rising overseas competition.

Investors then will need to be careful when hunting for bargains in this sector.

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

You can find Tom on Twitter @tommyr345

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 Scott Phillips.

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