Amazon poses the biggest threat to Wesfarmers’ discount department stores Kmart and Target rather than specialty retailers like JB Hi-Fi, investment bank Morgan Stanley warns.
A report by Morgan Stantley analysts says Wesfarmers could lose $400 million in earnings to the e-commerce giant by the 2026 financial year.
“We see Wesfarmers as the most impacted by Amazon’s arrival in Australia,” the Morgan Stanley report says.
“We believe that Wesfarmers’ department store businesses are particularly susceptible as Amazon rolls out its first-party product and its Prime offer (membership program).”
The report also said that while the market had been selling off speciality retailers ahead of Amazon’s arrival, investors had underestimated Wesfarmers’ exposure.
“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.”
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 $1.33 or 3.1 per cent to close at $41.37 on Thursday, after plumbing an intra-day low of $4.70.
Amazon, which has been selling books, e-readers and digital content in Australia since 2015, confirmed in April that it would roll out its full offering Down Under but failed to say when.
However, Morgan Stanley analysts said they expect Amazon’s expansion in Australia will begin later this year and that the e-commerce retailer will set up a large local distribution centre during 2018.
They also expect the business to grow in a similar way to what it did in the US and UK, starting with televisions, electronics, apparel followed by dry goods, fresh food and auto parts.
They estimate Amazon will generate $12 billion in sales in Australia by the 2026 financial year.
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