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New Nielsen Amazon Research, A Wake Up Call For CE Retailers

A new research study by Nielsen has revealed that 75% of Australians aged 18 and over are “interested” in buying from an Amazon Australia website, 56% are likely to buy.

Top of their purchases is consumer electronics 67% while there appears to be little interest in buying food. The research was conducted in January 2017.

45 per cent say they would subscribe to Amazon Prime to receive special deals, discounts and faster delivery, however, there was low levels of interest in Amazon Fresh, with only 9 per cent of respondents saying they were likely to buy fresh vegetables and 7 per cent saying they would buy fresh meat from Amazon Australia.

About 67 per cent of respondents said they were likely to buy electronics from an Amazon Australia site, 61 per cent books, 59 per cent clothing and 42 per cent footwear.

Nielsen’s research also showed Amazon already has a high level of engagement with Australian shoppers.

While conversion rates for most Australian online retailers are low, less than 10 per cent, Nielsen Omnibus research showed that Amazon’s US site converts almost one in two Australian shoppers (49 per cent) into sales. A key element of the Amazon web sites is content in the SKU with suppliers working closely with Amazon to deliver the content often via the Webcollage engine which is used by the bulk of the top 100 retailers in the USA.

Australian consumers spend between $500 million and $700 million a year on Amazon sites, less than they do at Woolworths’ or Wesfarmers’ online stores.

Citigroup’s head of research, Craig Woolford, believes Amazon could capture sales of at least $4 billion within five years of rolling out its services, representing 14 per cent of all online spending and 1.1 per cent of total retail spending.

Citigroup believes retailers who will be most exposed include JB Hi-Fi and Harvey Norman, specialty retailers such as Super Retail Group and Premier Investments, department stores (Myer, Target, and BIG W) and footwear retailers such as RCG.

“We expect the greatest impact to be felt by electronics retailers given Amazon’s product range and the branded nature of these products,” Mr Woolford said in a recent report. “We estimate 44 per cent of its product sales would be electronics [and] the next largest category is likely to be physical and electronic media including books.”

Profits could fall around 20 per cent as sales shift to Amazon, triggering negative operating leverage, and gross margins come under pressure as prices fall. Amazon is reportedly planning to undercut local prices by as much as 30 per cent.

Some insiders have told ChannelNews that one of the prime considerations in the decision by Wesfarmers to put Officeworks on the market was the pending arrival of Amazon and Alibaba into the Australian market.

One of the bidders for Officeworks is tipped to be US retailer Staples.

Ferrier Hodgson retail partner James Stewart told the Financial Review that Amazon now sells more clothing online than all other online retailers in the US. As a result, there is a “small tsunami” of retailers filing for Chapter 11 bankruptcy protection.

“When Amazon comes to Australia, whether it’s this year or not, it will take a year or two to have that knock-on effect,” Mr Stewart said.

Amazon insiders claim the company will roll out Amazon Prime Now in 2017.

Woolford believes Amazon is unlikely to establish a full physical presence in Australia for another two years, citing the need to set up fulfilment centres and sorting centres and to secure Australian brands.

At JB Hi Fi the retailer is moving to adopt new technology to get closer to their customers and compete head on with Amazon.

Last week the Melbourne based retailer reported their strongest earnings growth in eight years after buying The Good Guys.
Chief executive Richard Murray expects net profit to rise as much as 35.5 per cent this year to $206 million, analysts believe JB Hi-Fi, will beat its guidance and earn as much as $214 million.

Further double-digit profit growth is expected in 2018 as JB Hi-Fi books a full year of sales from The Good Guys and extracts synergies of $15 million to $20 million in the form of cost savings and better buying terms, boosting gross margins.

“As margins approach the prior peaks we are becoming increasingly concerned that JB Hi-F’s success may attract incremental capital to the industry,” Morgan Stanley analyst Tom Kierath said in a report last week.
Amazon is the second-largest electronics retailer in the US after Best Buy, who has 17 per cent of the market, their executives told ChannelNews recently that the way to challenge Amazon is to match them on content in the SKU while delivering “informed” information when a consumer takes time out to visit a store.

Citigroup estimates that Amazon could garner 7 per cent of the total electronics market and 33 per cent of online electronics sales, worth $1.8 billion in Australia in the first year.

Citigroup estimated that JB Hi-Fi’s sales could fall 6 per cent and earnings by 23 per cent, while Harvey Norman’s sales could fall 4 per cent and earnings by 19 per cent.

“We expect the greatest impact to be felt by electronics retailers, given Amazon’s product range and the branded nature of these products,” Citigroup’s head of research, Craig Woolford, said.

Morningstar analyst Johannes Faul said JB Hi-Fi needed to expand its online presence to remain competitive in the long term.

JB Hi-Fi’s online sales rose 40 per cent in the December half and now represent almost 4 per cent of total sales. The AFR said recently that B Hi-Fi’s other not-so-secret weapon is The Good Guys.

While consumers are increasingly willing to buy electronics such as laptops, tablets, cameras and phones sight-unseen online, when it comes to big-ticket purchases like fridges, dishwashers, washers and cooktops, most householders prefer to check them out in store before they buy.

That’s where JB Hi-Fi’s 103 The Good Guys stores and 59 JB Hi-Fi HOME stores, which sell electronics and appliances, will give the company an edge over Amazon’s pure-play online retail model.

The Good Guys deal increased JB Hi-Fi’s share of the home appliances market from 3 per cent to 29 per cent, ahead of Harvey Norman’s 24 per cent, while its share of the consumer electronics market has risen from 19 per cent to 24 per cent.

“I’ve no doubt new players will want to gain market share,” Mr Murray said. “We’re just in a really good spot to compete.”

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