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Amazon plans to smash Australia's retail sector one toaster at a time

Catie Low
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It's been hyped as the 10-tonne gorilla that's going to smash Australian retail - one toaster at a time.

Amazon has confirmed it is coming to Australia and says it plans to sink millions of dollars into launching its digital platform Amazon Marketplace within months, a move likely to batter sales of small-scale, high value items such as toasters, mobile phones and business shirts.

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Amazon is coming to Australia

The US online retail behemoth confirmed Thursday it will establish the first of many fulfillment centres in Australia, in a move that's sure to disrupt the local market.

And Cyan Investment Manager director and portfolio manager Dean Fergie said the smaller, online retailers were most at risk from Amazon's arrival.

He said any of the minor players, such as Temple & Webster and Surfstitch, looked vulnerable.

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"In the listed space, Kogan is likely to be reasonably impacted, certainly initially from a sentiment aspect and really any of those other minor players," Mr Fergie said.

"Anything that's easy to deliver and pretty generic, things that people buy on cost because they know what they want, whether that's shirts, toasters or mobile phones and ... food eventually.

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"Larger goods, the bigger purchases that aren't quite as generic will be less affected."

He cautioned the impact of Amazon's arrival might have been a bit overcooked, given many Australians already use the digital giant's US platform to buy and sell.

More than 1000 local businesses already sell through Amazon and suppliers are optimistic the launch of the Marketplace platform will reduce their reliance on Australia's highly concentrated retail sector, including the Coles-Woolworths supermarket duopoly.

Many of these sales are expected to swap over to the Australian Marketplace platform and the promise of fast delivery times might lure a number of new shoppers but Australia's online sales are still only running at about 5 per cent of total sales compared with about 30 per cent in the US.

"One of the issues with Australia, compared to London or Tokyo or New York, is that there's just not the density of population so it's much harder for online traders to actually deliver things speedily, and cost-effective is much harder because there's just not people living on top of one another," Mr Fergie said.

However, the rate of online sales in Australia will only grow and what analysts claim Amazon will expose is the lack of investment many Australian retailers have put into their online operations.

Broker Morgan Stanley claims the Marketplace operation will initially take sales from eBay's $4.7 billion haul.

Ebay's Australian sales are among the highest in the world on a per capita basis, with Australians spending 35 per cent more than US shoppers.

Analyst Tom Kierath said Amazon's pricing in Australia was likely to be higher in Australia and delivery times slower, reflecting the vast geography of the country.

Morgan Stanley claims Australian shoppers spend as much as $1 billion a year through Amazon.com.au and its overseas platforms, and broker Citi forecasts these sales could jump to $4 billion within five years, which would represent a 14 per cent slice of all Australian online sales.

Citi analyst Bryan Raymond said the challenge for Amazon in Australia would be to attract enough sellers, particularly when a number of Australian sellers were already selling through its US, UK and European marketplaces.

"If the Australian platform followed the progress of offshore Amazon marketplaces, it represented an opportunity for small businesses to rapidly scale up to national operations," Mr Raymond said.

"Marketplace and Fulfillment By Amazon (FBA) has the capacity to put the ​scale of Amazon behind a small business and service an entire country."

The key issue will be the margin Amazon takes from sales, which is expected to reflect the high cost of shipping over large distances in Australia.

However, Amazon has invested in its own jet fleet in the US to overcome shipping challenges at busy times of year such as Christmas so it's demonstrated a willingness to invest its own funds to overcome delivery challenges.

 If the Australian platform followed the progress of the US site it represented an interesting opportunity for small businesses to rapidly scale up to national operations, according to Citi.

"Marketplace has the capacity to put the ​scale of Amazon behind a small business and service an entire country," Mr Raymond said.

Amazon is expected to partner with a number of logistics and delivery businesses in Australia and it's already assigned a commercial property agent to source distribution sites.

Amazon Web Services launched in Australia in 2012 and it subsequently opened a Kindle store on amazon.com.au in 2013, which already support close to 1000 workers in the region.

More to come

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