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Amazon poses a bigger threat to Wesfarmers' discount department stores, Kmart and Target, than to specialty retailers such as JB Hi-Fi, investment bank Morgan Stanley has warned.
A report by Morgan Stanley analysts said Wesfarmers could lose $400 million in earnings to the e-commerce giant by the 2026 financial year.
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"We see Wesfarmers as the most impacted by Amazon's arrival in Australia," the Morgan Stanley report said.
"We believe that Wesfarmers' department store businesses are particularly susceptible as Amazon rolls out its first-party product and its Prime offer [membership program]."
"We think the market is mispricing the impact of Amazon's entry in Australia, by selling the category killers rather than Wesfarmers, which we view as most exposed via its department store businesses."
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Wesfarmers was "over-owned" and had benefited from the housing boom and a weak Woolworths - two tailwinds that were fading, it said.
Shares in Wesfarmers fell on the report, slipping 3.23 per cent, or $1.38, to $41.32 on Thursday.
However, Morgan Stanley analysts said they expected Amazon's expansion in Australia to begin later this year and that the e-commerce retailer would set up a large local distribution centre during 2018.
Morgan Stanley analysts said they expected Amazon's expansion in Australia to begin later this year. Photo: AP
They expected the company to take a similar path to the one it followed in the US and UK, starting with televisions, electronics and apparel, followed by dry goods, fresh food and auto parts.
They estimated Amazon would generate $12 billion in sales in Australia by the 2026 financial year.