Stock Takes: Retailers feel the Amazon effect

Billionaire Amazon founder and Washington Post owner Jeff Bezos. Photo / AP

Amazon's arrival across the Tasman has hit the share prices of some of Australia's big-name retailers, and some New Zealand chains have been caught in the downdraught.

The online retail behemoth last week appointed one of its top German executives - Rocco Braeuniger - as its country manager for Australia and signed a lease on a former Bunnings Warehouse space, which will become its first major distribution facility, on the outskirts of Melbourne.

Around the same time, the satirical website The Onion ran a spoof column attributed to Amazon founder Jeff Bezos, with the headline: "My Advice To Anyone Starting A Business Is To Remember That Someday I Will Crush You."

As the saying goes, many a true word is spoken in jest.

Analysts expect Amazon to have a profound effect on the earnings of businesses like JB Hi-Fi and Myer within five years, and that's already reflected in their share prices.

The venerable Myer, which has been going since 1900, has seen its share price almost halve in the past 12 months, while trade in electronics chain JB Hi-Fi has been volatile, with a weaker tone.

Locally, the share prices of the bigger retail players have been affected by Amazon's impending arrival.

Trade Me Group fell to a near a seven-month low after two research houses downgraded their ratings for the online retail platform's stock.

The shares closed yesterday at $4.82 after Deutsche Bank downgraded the stock to a "sell" - with a price target of $4.30 - earlier in the week.

In addition, Macquarie Research had lowered its Trade Me recommendation to "underperform".

Trade Me shares have slumped by about 12 per cent since July 25, which analysts have put down to the Amazon effect.

Forsyth Barr's James Bascand, who also rates Trade Me an "underperform", predicts a 9 per cent increase in normalised profit to $92.2 million, on an 8.1 per cent gain in revenue to $235.7m, when the company reports annual earnings on August 24.

The Warehouse, whose shares closed yesterday at $2.12 and have dropped by 20 per cent in value over the latest 12 months, has also been caught up on concerns about Amazon.

But smaller retail chains have not fared badly.

Over the past 12 months, retailer Briscoe has seen its share price rally by 12.4 per cent, clothing chain Hallenstein Glasson has shot up by 26 per cent, and shares in outdoor products chain Kathmandu have rallied by 19 per cent.

All three have significantly outperformed the S&P/NZX 50 Index, which has gained just 6 per cent over the past 12 months.

"The Aussie market has very much factored in the arrival of increased online competition in the form of Amazon and certainly, there are some real competition concerns and structural challenges for the Aussie retailers," says Harbour Asset Management portfolio manager and analyst Shane Solly.

"In our view, this change will require companies to spend more money to compete, whether that be in systems or in processes.

"Some of them will grow and some of them will shrink -- that's been the experience globally," says Solly.

"It is a change in the industry that is hard to ignore.

"Potentially in New Zealand we will get a delayed impact."

Solly says it is reasonable to expect that Amazon will get product into New Zealand in due course.

"But is it at the top of the list for Amazon to do? We will see, but it may not be."

Amazon needs scale to work, and New Zealand's relatively small population may be a saving grace for some retailers, he says.

"That's one of the reasons why domestic New Zealand retailers have been less impacted."