This is the second article in our new “What To Say” series, all in 3 minutes reading time. Did you miss the first one – Uber Lost Nearly $3 Billion, Why is it worth $69 Billion? 

This information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.

 

Amazon is setting up shop in Australia, isn’t that great for consumers?

It’s happening. Amazon has officially confirmed it is setting up an online shop in Australia. This is great news for many Aussies who right now can only buy through offshore Amazon online stores (e.g. in the U.S.) with much higher delivery fees and longer delivery times to Australia.

There are reports Amazon will also offer prices up to 30 per cent cheaper than local stores. Combined with the Amazon Prime delivery (a yearly fixed fee for unlimited free priority shipping as well as access to Netflix competitor, Amazon Prime Video), consumers look set to be the big winners.

Why should Aussies worry about losing money?

Do you have any investment exposure to Australian retail companies?

This could be direct investment in listed shares or indirectly through your super fund. One of Australia’s largest retailers Wesfarmers (which owns Coles, Kmart, Target) alone has over half a million direct shareholders. The arrival of Amazon should be a concern for shareholders of Wesfarmers and other Aussie retailers.

Richard Goyder, the outgoing CEO of Wesfarmers, has gone as far as saying Amazon will “eat all our breakfasts, lunches and dinners” unless the retail sector innovates. The chart below clearly shows why he is right to be wary of Amazon’s disruptive power.

 

Aussie retailers will no doubt fight back. This may involve competing on price, providing much better customer service and properly investing in a world class online shopping experience.

The problem is this will cost money while Amazon will still increasingly capture market share. For example, investment bank Credit Suisse estimates companies such as JB-Hifi and Myer could lose a third to over half their earnings respectively in the coming years because of Amazon. This cannot be good news for their share prices.

That is why many Aussies may stand to lose more money from their investment exposure in Australian retailers than they’ll actually save from shopping at Amazon.

Is this an investment opportunity?

Yes. If you have any investment exposure to Australia retailers, it is time to take a good hard look at how they are responding to Amazon’s arrival. Some companies (like Wesfarmers) are investing in innovation to compete while others like Gerry Harvey (the billionaire chairman of Harvey Norman) take a more confrontational approach calling Amazon a parasite.

The other opportunity to consider is an investment exposure to Amazon itself particularly if you believe in the continuing fast growth in online shopping. At the time of writing, the AtlasTrend Online Shopping Spree Fund and the AtlasTrend Big Data Big Fund both own shares in Amazon. (AtlasTrend members can find out exactly why we invest in Amazon here and how Amazon is delivering the killer blow to traditional retailers).

What To Say To People You Know

You may think Amazon setting up shop in Australia is good news but did you know it might actually cost you money? It is time to check on your investments to see if you have any exposure to Australian retailers that will have to compete with Amazon. The smart thing to do might be to consider getting some investment exposure to Amazon sooner rather than later.

 

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