Australian retailers will cut the price of electronic goods by about 10 per cent to remain competitive when Amazon arrives on our shores and will lose more than a third of their earnings, market analysts say.Â
CITI analysts said in a note published on Wednesday that the American e-commerce giant appears to sell electronics for about 15 per cent less than Australian retailers, with goods worth less than $1000 blowing out to 20 per cent cheaper.Â
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Amazon by the numbers
Get to know the online retail giant before it sets up shop on Australian shores.
With Amazon setting up operations, including warehouses in Australia that would allow it to offer its fast-delivery Prime service, retailers would have to cut prices by about 10 per cent to remain competitive, CITI analyst Bryan Raymond wrote.Â
That would hit the profit margins of JB Hi-Fi and Harvey Norman by between 1.8 per cent and 2.5 per cent over three to four years, he said.Â
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CITIÂ said it expected electronic goods to make up about 44 per cent of Amazon's local sales, which are tipped to total about $4 billion a year. That would give it a 8 per cent share of the local market.Â
Based on how Amazon Prime had already up-ended American, British and German retailers, CITI said it was downgrading its long-term earnings forecast for JB Hi-Fi by more than 40 per cent and by more than 30 per cent for Harvey Norman.
Mr Raymond put a "sell" recommendation on JB Hi-Fi and lowered its share price target by 35 per cent. CITI had Harvey Norman on sell but cuts its price target by 33 per cent.
Amazon would begin to bite into Australian retailers' earnings in the 2020 financial year, he said. But the decline would not be terminal, with retailers typically starting to recover margin about five years after Amazon launches its Prime service.
"We expect the electronics industry to likely consolidate further, as retailers rationalise store footprints from the current over-stored position," Mr Raymond said.Â
JB Hi-Fi's shares were down 0.7 per cent at $24.14 by midday and Harvey Norman's were down 0.6 per cent at $4.12.Â
A research note from Credit Suisse analyst Grant Saligari predicting the arrival of TK Maxx and Amazon in Australia would "be all too much" for Myer sparked a sell-off of the department store's stock on Monday.
Myer's shares have fallen 17 per cent over the past month.Â
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