JB Hi-Fi and Harvey Norman to get swamped in the Amazon

JB Hi-fiAmazon could own eight per cent of Australia’s consumer electronics market within just five years, pushing local players including JB Hi-Fi to close stores.

Investment bank Citigroup says Amazon, which recently confirmed it will roll out its full online marketplace in Australia, is on average about 15 per cent cheaper than Australia’s consumer electronic retailers.

Citi says JB Hi-Fi and Harvey Norman will likely cut their average sale prices by about 10 per cent when Amazon enters the local market in 2018/19, and has therefore cut its long-range earnings forecasts for the companies.

“Amazon is set to drastically alter the competitive environment for electronics retailers,” Citi analysts said in a report.

“We have downgraded our long-term earnings forecasts by more than 40 per cent for JB H-Fi and more than 30 per cent for Harvey Norman.”

The downgrade hit share prices, with JB Hi-Fi dropping 1.2 per cent to $24.03 and Harvey Norman also falling 1.2 per cent, to $4.10.

JB Hi-Fi is likely to feel the greatest pricing pressure, given its market leading position in electronics, while Harvey Norman’s furniture and large appliances, which account for about 40 per cent of its sales, will act as a buffer, Citi said.

The analysts expect Amazon will have an eight per cent market share in consumer electronics within five years of its Australian debut, and an 11 per cent share in 10 years.

Amazon’s success in the US and UK led to small players either joining Amazon’s platform or going out of business, while the top players consolidated, Citi said.

It expects the same will happen in Australia, with JB Hi-Fi likely close one of its two Melbourne head offices to reduce costs.

There is also likely to be a “slowdown in store roll out over the first five years post Amazon’s launch”, before a substantial reduction in store footprint over the following five years, Citi said.

But Amazon’s arrival does not spell a terminal decline for its competitors, with margins typically beginning to recover about five or more years after Amazon launches its video and music streaming service Prime, according to the report.

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