Amazon a bigger threat to local retailers than market is currently estimating, says analyst

Amazon will use its Prime platform and same-day delivery offers to supercharge its growth in Australia to the cost of local retailers, warns a Jarden analyst.

Investors are continuing to underestimate the impact of US online retail giant Amazon in Australia, with the retailing juggernaut to grow its market volumes here to more than $5bn by next year and snatch more market share from local traditional players, new research suggests.

Jarden analyst Ben Gilbert argues that Amazon’s volumes will be close to $5bn in 2023, up 25 per cent, and rise to more than $5.5bn by 2024.

He expects Amazon’s growing digital presence, same-day delivery pledge and the rising penetration of its Amazon Prime platform to drain rival retailers of customers, sales and ultimately profits.

“In our view, Amazon Australia is reaching an inflection point, with growth poised to accelerate for three reasons: value proposition, same-day delivery and momentum,” Mr Gilbert writes in a note to clients of the investment bank.

“Consumers cite value as a key driver of engagement with Amazon Australia, driven by free delivery with Prime, streaming offer, range, and its pricing ­algorithm providing confidence on more than 200m SKUs.”

The broker’s long list of “most impacted” ASX retailers include JB Hi-Fi, Super Retail, Wesfarmers, Accent, The Reject Shop, Baby Bunting, Kogan, Temple & Webster and Adore Beauty.

Mr Gilbert said same-day delivery was boosting its customer retention rates and the momentum of its web traffic, rising more than 20 per cent year-on-year each month.

But it was the continued take-up of Amazon Prime – which offers a variety of attractions such as music, TV and movie streaming, plus free delivery options for items bought on Amazon – that was supercharging Amazon Australia’s push locally and was one of the greatest threats to other retailers.

“In our view, the near-term game changer is Prime, with increased marketing of same-day to open up new markets.

“We estimate every 10 per cent add to Amazon Prime members and an additional order per annum is equivalent to an additional $700m to gross market volumes.

“Further aiding Amazon Australia will be an increasingly value-conscious consumer that will use online to research for the best price. Amazon is increasingly the first point of call. Most at risk remain office, electronics, fashion, house and garden and recreation.”

Jarden estimates the penetration of Amazon Prime in Australia today at 29 per cent, versus the Americas and Britain at 68 per cent and 54 per cent, respectively.

“The Australian market is less mature than the US/UK in terms of online penetration however, we think the trajectory and success of Amazon Australia – to date – suggests the Australian market is, and will continue to be, an overwhelming success.”