Bunnings, which is owned by Australian conglomerate Wesfarmers Ltd (ASX: WES), could be facing steep competition as Amazon announces the launch of its new garden store.
Amazon launches online garden store
In a bid to target consumers who prefer the convenience of shopping online and home delivery, Amazon Australia announced today the launch of its new garden and outdoor store. The e-commerce behemoth, which launched in Australia in 2017, has continued to expand its offering over the last 2 years, covering baby goods, pets and pantry food and drinks.
Amazon's new store looks to offer a new range of garden and outdoor products by selling patio furniture, barbecues, gardening tools and pool supplies. By entering the lucrative outdoor and gardening space, Amazon is on track to compete with the Wesfarmers-owned Bunnings Warehouse and other brick-and-mortar retailers like Mitre 10, owned by Metcash Limited (ASX: MTS) and Barbeques Galore.
In comparison to Bunnings, which does not ship bulky items such as sheds and barbecues, Amazon members will have an advantage with products being delivered directly to their door. Amazon Prime members will also receive free shipping and guaranteed 2 business day delivery.
How will Bunnings compete?
Bunnings only started offering online services in selected areas in June of 2018 and expects its online click-and-collect service to be available nationally by December. The rollout of its online services will be ahead of schedule after Wesfarmers invested $30 million to upgrade the Bunnings online sales platform. Wesfarmers has recognised the importance of digitalisation and engagement with customers by investing $75 million in IT implementation and projects for Bunnings and its industrial division.
Following the rushed launch and expansion of Bunnings in the UK, Wesfarmers have remained cautious in Australia, conducting a pilot program in Tasmania earlier this year and slow rollout of click-and-collect in Victoria. The company plans to implement delivery options in the next 12 to 18 months.
The Managing Director of Bunnings, Mike Schneider, believes that the in-store experience and expertise offered by the company will see it fare well against Amazon, stating that "our team of experts in store means we are also able to offer great service to run alongside our online transaction capability."
How important is Bunnings to Wesfarmers?
Late last month, Wesfarmers reported full year earnings highlighted by a 4.3% growth in revenue of $27.9billion. Wesfarmers also reported EBIT of $2.9 billion, a growth of 12% and a 13.5% increase in net profit after tax of $1.9 billion.
Bunnings continues to be the flagship and largest contributor for Wesfarmers, contributing 57% to the company's full year EBIT. Bunnings saw EBIT grow 8.1% to $1.62 billion for the financial year. The solid performance from the hardware giant was able to compensate for the weak sales posted by Kmart and Target.
The Wesfarmers share price closed relatively flat, down just over 1% for the trading day.
