Retailers Are Already Feeling The Amazon Pinch

Image: iStock

Amazon clearly has big plans for Australia - and local retailers are about to discover what it's like to get pummelled by someone bigger and stronger than them.

On the back of estimates expecting Amazon to become a $12B juggernaut by 2026, investment bank Morgan Stanley downgraded its valuation of Harvey Norman, JB HiFi, Myer and other large retailers. This bleak outlook echos a Credit Suisse report from a few months ago. In short, traditional retail is in trouble.

Amazon isn't just going to hit the incumbent dinosaurs with lower pricing. The real secret sauce will be the way Amazon uses its five distribution centres to change the way local supply chains operate. As Gartner analyst Debra Hoffman recently explained:

Traditional supply chain strategies that focused on incremental change, being risk-averse, and that are measured mostly on cost savings and efficiencies, will no longer win.

According to Morgan Stanley's analysts, “We have downgraded our Industry view to cautious (from In-line) because we believe the Amazon impact will be broad-based."

One of the biggest retail impacts is likely to hit KMart, said Morgan Stanley. That's because they are particularly exposed as they sell a lot of lower priced items. Under current supply chain arrangements, it's simply not worth offering shipping on those items. As Amazon will bypass transport to a physical store and then deliver to the customer they can hold a lower unit cost. That's likely to cost Wesfarmers, KMart's owner, as much as $400M.

eBay has long since stopped being a go-to destination for bargain hunters as more large retailers have used the online marketplace as a virtual big-brand shopping mall. It is also likely to be heavily impacted.

WATCH MORE: Tech News

Comments

    Whinge from Gerry Harvey in 3... 2... 1...

Join the discussion!