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Australia: Amazon launch confirmed, soggy sentiment to prevail? - Westpac

Matthew Hassan, Research Analyst at Westpac, points out that Amazon have confirmed its Australian retail operations will launch on Nov 24 and while key aspects of the rollout and the response of existing retailers remain highly uncertain, the experience abroad suggests Amazon's entry will result in significant downward pressure on retail margins.

Key Quotes

“The response from other retailers abroad have been varied but typically includes some industry consolidation (e.g. mergers/closures), increased efforts to reduce costs (e.g. more effective use of retail space), and a greater focus on developing online sales channels (e.g. through loyalty schemes).”

“For Australia's retail sector, the launch will add to already significant pressure on profitability and margins. The most exposed product lines account for 19% of total retail sales and 28% of sales by 'store-type' (i.e. department stores sell many items that are less exposed to Amazon such as furniture but are still a highly exposed store-type category).” 

“The impact on the wider economy is harder to assess, but is likely to include additional downward pressure on retail prices and wage incomes of those employed in affected sectors with some offsetting positives around consumer purchasing power, improved retail services, and a direct boost from the increase in Amazon's operations (including via its 'third party' suppliers).”

“The entry may also lead to increased investment in the retail sector, although this is likely to be focussed around enhancing online sales channels and associated changes in logistics and may be offset by reduced investment in 'bricks and mortar'.”

“Overall, while the disruption to the retail sector may well be large, many of the macro level effects are likely to be marginal and come through gradually – the peak impact is likely several years away. It should be noted that the categories likely to be most impacted initially only account for 8% of total consumer spending.”

“Near term there may be some lift in consumer spending associated with the launch. However, the general consumer backdrop remains downbeat leading into year end. It is also unclear how much any lift will 'cannibalise' sales that would otherwise have gone through other channels (both local retail and offshore based online retailers including Amazon's US-based operations).While prospects for the medium to longer term – including Amazon's ambitions around fresh food, drone delivery and it's in-home interfaces via Amazon Alexa – are all very exciting, their roll out in Australia looks likely to still be a long way off.”


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