Morningstar | Australian Retailers Haven't Felt Amazon AU's Presence So far, But Need to Up the Ante on E-Commerce
Australian retailers saw very little from Amazon Australia, or Amazon AU, in fiscal 2018, but we think this is bound to gradually change. We expect Amazon AU's revenue will grow from next to nothing to AUD 24 billion in fiscal 2028, representing 5% of total retail spending. Amazon AU's strategy is striving to be the online retailer of choice. We expect it to win the hearts and minds of Australians, but not by recklessly dropping prices. Instead, we see the online giant offering industry-leading delivery times and the lowest delivery fees, while locking in customer loyalty with Prime. Some Australian retailers offer quicker deliveries than Amazon AU and leading click-and-collect platforms are unlikely to be beaten by a pure online player, but we expect Amazon AU to improve delivery times as the national distribution network expands. Amazon AU Prime already has the cheapest delivery fees, and shipping costs for nonmembers are at the lower end of the range.Amazon AU is likely to hit hardest the brick-and-mortar retailers operating in consolidated markets and selling product categories with high online penetration. The department store sector is one of the more challenged and we expect significant store closures to adjust to a shrinking addressable market. Hardware and auto parts are among the more fortunate categories, due to high shipping costs relative to product values and the immediacy of need. The market has caught on to this fact but is overly positive or negative in some instances, with too much upside priced in for Wesfarmers and Super Retail Group and too much downside for Myer.
We retain our fair value estimates on narrow-moat Wesfarmers at AUD 39.00, narrow-moat Woolworths at AUD 24.50, no-moat Harvey Norman at AUD 3.40, no-moat JB Hi-Fi at AUD 24.50, no-moat Super Retail at AUD 7.50, and no-moat Myer at AUD 0.63.
For more detail please refer to our report “Aussie Retail Investors: Don't Be Fooled by Amazon's Slow Start†published Oct. 18, 2018.
JB Hi Fi is engaged in the retailing of home consumer products. Co. provides a range of brands with particular focus on consumer electronics, software including music, games and movies, whitegoods and appliances.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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