Amazon could launch in Australia in 'next 60 days'


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US retail giant Amazon could launch in Australia within the next 60 days if feedback from suppliers proves correct, according to Citi analysts.

US retail giant Amazon could launch in Australia within the next 60 days if feedback from suppliers proves correct, according to Citi analysts, upping the pressure on struggling retailers in the all-important lead-up to Christmas.

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Amazon confirmed in April its plans to bring a retail offering to Australia and has since signed a lease on a 24,387 square metre former Bunnings warehouse on the outskirts of Melbourne and appointed one of its top German executives to run its local operations.

While the exact timing of its launch remains uncertain, Citi analysts said on Thursday they expected Amazon's local website to go live sometime next month, ahead of Black Friday on November 24, which is regarded as the start of Christmas shopping season in the US and is fast catching on here.

Amazon had set buying terms with suppliers and placed first orders in recent weeks, Citi said in a note to clients.

"This increases near-term gross margin risks for retailers as price will be Amazon's key lever," it said.

"Amazon will not have a meaningful advantage in two of their three key pillars in the short term (range and delivery, which will evolve over time). As a result, we expect prices to be competitive in order to drive volume."

Citi said Amazon was likely to maintain a strategy of matching or offering the lowest price in the market at all times.

"This could spark a response from incumbent retailers who are intent on not being beaten by Amazon on price during the key pre-Christmas sales event," it said.

In our view, lower pricing will likely be the result of Amazon's lower margin and ROI [return on investment] expectations, particularly in the short term."

Citi said Amazon had targeted a full product range with key suppliers, but was likely to target "gift" categories in the short term given its initial logistics constraints.

While it has not yet announced a Sydney "fulfilment centre", it is expected to be at the Goodman/Brickworks Oakdale Industrial Estate at Eastern Creek.

Citi suggested it might secure third-party warehouses in the near term.

It estimated the impact of Amazon's arrival in the second quarter of 2018 could be $200 million, or 0.2 per cent of total retail sales.

Retail spending ground to a halt in July, the latest figures from the Australian Bureau of Statistics revealed on Thursday, with fashion, household goods and electronics sales all going backwards. Department stores were down 2.8 per cent in July alone.

ANZ senior economist Jo Masters said the influx of online and foreign fashion chains, such as H&M and Uniqlo, were creating more competition and driving down prices.

The arrival of Amazon in the crucial Christmas shopping period will only increase the pressure on the sector.

Citi predicts the short-term impact will be limited in the food, liquor, furniture, hardware and auto categories. Electronics, department stores, leisure, clothing and footwear face greater near-term sales and gross margin risks, it says.

It nominated JB Hi-Fi, Harvey Norman, Myer, Super Retail and RCG Corp as the most exposed stocks.

with Patrick Hatch

The story Amazon could launch in Australia in 'next 60 days' first appeared on The Sydney Morning Herald.

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