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Watch out: Amazon, page-10

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    Amazon and the retailers with the most to lose from the giant's Aussie entry

    Retailers with the most to lose from Amazon's entry into Australia are those with high margins in categories with strong online penetration, says Roy Morgan Research. AP

    by Sue Mitchell
    Amazon will cut a swathe through the $222 billion retail sector when it arrives next year but the retailers with the most to lose may not be Woolworths, Coles, JB Hi-Fi and Harvey Norman.

    Retailers with high margins and big market share in categories with fast-growing online penetration are more at risk of losing sales to Amazon than those with low margins operating in categories where online sales are low, says Roy Morgan Research chief executive Michele Levine.

    "The more you are making the more likely Amazon will go after that prize," Ms Levine told The Australian Financial Review after releasing Roy Morgan's annual state of the nation retail report on Wednesday.

    "The retailers really at risk are those that have upmarket brands where there's a whole lot of profit."

    Ms Levine believes the risk to major supermarket chains Coles and Woolworths from Amazon's mooted entry next year is overstated because their margins are relatively low and online food and grocery sales represent only 3 per cent of total supermarket sales of $90 billion.

    "Online and therefore Amazon is not the immediate threat to grocery retailers," Ms Levine said.
    "The biggest threat to the grocery retailers is the international bricks and mortar players such as Aldi, Lidl and others looking at Australia and saying there are rich pickings. They'll be the immediate threat."

    Online grocery penetration has stagnated at about 3 per cent, even though about 26 per cent of consumers said in 2015 they planned to buy some of their groceries online, according to Roy Morgan research.

    "In my view there's got to be a dramatic change before people are going to shop [for groceries] online," Ms Levine said. "Whether Amazon is going to be able to bring that change I don't know.

    "The fact there have been so many attempts at online groceries that haven't taken off makes me think it's quite difficult."

    Ms Levine also played down the risk to consumer electronics retailers such as JB Hi-Fi, saying they were less threatened by Amazon's arrival than other discretionary retailers because margins were low.

    "Amazon founder Jeff Bezos says your margin is our opportunity," Ms Levine said. "Clearly what they're looking for is stores that have a lot of margin and a big enough share to bother with.

    "One of the reasons [consumer electronics] retailers are not so exposed as you'd think is ... they have very low margins, a very low cost base, they're very good at running very slick ships," she said. "That means there's not a lot of margin for Amazon to come in."

    Categories most exposed to Amazon's arrival include baby goods, men's wear and women's wear, where margins were high, markets were sufficiently large to attract Amazon's attention and online sales were rising.

    Beware Baby Bunting

    Ms Levine singled out Australia's largest baby goods chain, Baby Bunting, as being one of the retailers most exposed to Amazon, saying it had good margins and about 30 per cent of the $720 million baby goods market. Online sales had soared and now represent more than 33 per cent of total sales.

    "That's the one that would have the most to lose from an Amazon baby offer," she said.

    In a market where spending on discretionary commodity goods was falling, the challenge for large retailers, such as department store chains Myer, David Jones, Kmart, Target and BIG W, would come when shopping on Amazon became mainstream.

    "As Amazon becomes the norm, it becomes a really big threat to the bigger retailers as opposed to those people playing in niche markets," Ms Levine said.

    Amazon was keeping its Australian plans under wraps but industry players believed the online retailer was likely to launch Amazon Prime and Prime Now in the second half of 2017 and Amazon Fresh, its online grocery delivery service, in 2018.

    Citigroup's head of research, Craig Woolford, estimated Amazon could garner $3.5 billion to $4 billion in annual sales in Australia within five years, representing about 14 per cent of online sales and 1.1 per cent of total retail sales.

    Amazon now accounted for 50 per cent of online sales in the US.

    http://www.copyright link/business/...-from-the-giants-aussie-entry-20161123-gsvla7
 
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