Australian department stores are facing an uncertain future with sales and revenue predicted to shrink over the next five years.

Morningstar analysts have predicted the tough times Australian department stores are facing won’t let up anytime soon stating they expect online e-commerce giant Amazon to prove similarly disruptive to incumbent retailers in Australia as in the US.

“We expect the structurally declining department store sector’s woes will be exacerbated by the extraction of sales by Amazon Australia,” Morningstar said in a note.

“We forecast these headwinds will reduce the sector’s share of the retail market to 4.4 per cent in Australia by fiscal 2027 from 6.0 per cent this year, a magnitude the market is underestimating,” the equity firm stated.

Morning star believes Amazon will seize $2.3 billion of annual sales from the retail sector by fiscal 2027.

“While we forecast this strong online retail growth to be partially captured by the incumbent department stores’ own websites . . . Amazon Australia will pursue its piece of the pie, leading to a decline in the size of the sector’s addressable market,” it said.

A continued decline in the sector’s relevance to consumers was also predicted as they shift their spending to entertainment, leisure, and specialty shops.

Despite this, the equity firm insisted that all department store chains would survive as they work to reduce their floorspace and turn their focus to omni-channel platforms.

Morningstar believes Kmart is in the strongest position to withstand online competition, due to its low pricing point, while Myer and David Jones will go head-to-head in defending market share.

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