Electronics giant JB Hi-Fi could be crushed by Amazon's entry to Australia with the e-commerce company putting pressure on retailers to drop their prices.
Aussie companies will need to get creative to keep people coming through their doors and experts say simply dropping the price of products won't be enough.
Senior lecturer at University of Technology Sydney's Accounting Discipline Group, David Bond, said JB Hi-Fi and Harvey Norman won't be able to compete with Amazon on price, despite their own claims to the contrary.
ELECTRONICS GIANTS WILL LOSE OUT
Amazon is attractive to customers because of its minimal mark-ups its products.
In 2016, Amazon's gross profit margin was only 6.8 per cent, compared to JB Hi-Fi which had a margin of 21.9 per cent and Harvey Norman, which had a margin of 31.4 per cent.
Mr Bond told news.com.au Amazon could afford the low mark-up because it did not have to pay the same amount on wages, building leases and marketing.
Mr Bond said ultimately companies like JB Hi-Fi would lose money.
"It's not sustainable in the longer term. They'd have to start looking at what other costs they could cut," he told news.com.au.
"JB has high marketing costs. They could start to reduce the outspend, but if you reduce that you will be less visible in the market, affecting your ability to sell.
"If you look at high rental and lease arrangements, do they close stores? But then is there availability for people to buy the product?"
AMAZON COULD PUSH JB HI-FI TO CLOSE STORES
AAP reported last month Amazon could own 8 per cent of Australia's consumer electronics market within just five years and could push major Aussie players like JB Hi-Fi to close stores.
In a report, investment bank Citigroup said Amazon's roll out of its full online marketplace in Australia, is about 15 per cent cheaper than Australia's consumer electronic retailers.
Citi said JB Hi-Fi and Harvey Norman were looking to price match, and were considering cutting their average sale prices by about 10 per cent once Amazon hit Australia in 2018/19.
"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 Hi-Fi and more than 30 per cent for Harvey Norman."
AAP reports 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.
AAP reports 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.
HOW CAN COMPANIES COMPETE?
Mr Bond said Myer and David Jones would also feel the pressure of Amazon coming to Australia after clothing retailers in America were hit hard by Amazon entering the market.
"They are able to bring greater choice and cut the price," he said.
"Myer and so on have already been hit by people like Top Shop, Zara and H&M and this is potentially another one of those entrants."
Mr Bond said if businesses purely focused on price they would be pushed out of the market.
"It's about what other things they can offer, the service around it and what else they can bring to the table," he said.
"If you're going to buy an iPad, you can get that from anywhere, it's a one-off purchase. You're never going to win just having that to bring to the table.
"From a personal view, say you had a bike store or ski shop, just the product themselves don't bring a lot to the equation. It's service and advice and building the relationship with a customer, putting on events or making sure the customer has a tie to the store."
Mr Bond said Amazon would work in the cities but would be interested to see if it was as successful in more regional areas.
"Australia being such a big country with so many regional communities, it would be hard. How it works in those towns will remain to be seen," he said.
JB Hi-Fi declined to comment on Amazon's move to Australia.
- with AAP