Amazon just passed $1bn in revenue in Australia; are ASX retail and ecommerce stocks under threat?
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ASX ecommerce stocks have been an unexpected beneficiary of COVID-19 but is Amazon in Australia a threat to them?
COVID-19 lockdowns led to retailers closing their doors, stuck at home consumers being bored and dedicating time to home and personal projects they may have otherwise lacked opportunity to delve into.
That was the perfect recipe for ecommerce companies to grow – and many on the ASX did.
Looking at the broad ASX retail sector, the average stock has gained 82 per cent in 12 months.
But there are several stocks at the other extreme of the scale, particularly travel agency stocks Helloworld (ASX:HLO), Flight Centre (ASX:FLT) and Webjet (ASX:WEB), as well as daigou store operators AuMake (ASX:AUK) and Mediland Pharm (ASX:MPH).
But bubbling under the surface for some years in Australia has been global ecommerce pioneer Amazon (NDQ:AMZN).
Named after the world’s largest river by volume (in accordance with founder Jeff Bezos’ vision for an “Everything Store”), Amazon was founded in 1994 and first came online in Australia in late 2017 after more than two decades of expansion in the US.
Now, just over three years later, it has surpassed $1 billion in revenue Down Under for the 2020 calendar year.
The news came as part of the global corporate’s financial disclosures to the American exchange on Friday night.
This is minuscule relative to its global revenues – US$386 billion ($504 billion) in 2020, of which US$125.56 billion ($164.05 billion) was in the last quarter – not to mention the news that Bezos was stepping down as CEO after more than 25 years at the helm.
But it makes it harder to dismiss the proposition that Amazon can just be ignored by Australian retailers.
Stockhead spoke with Chadd Knights from Duro Capital last week as part of MoneyTalks and asked him if Amazon posed a threat.
Knights noted Australia’s retail sector saw a brief sell-off in mid-2017 when Amazon first entered the market but investors quickly moved on.
He acknowledges Amazon is growing but thinks it still needs more scale Down Under.
“I think a key here is the Australia market is very different to the US market, geographically we’re very spread out,” Knights said.
“So the likes of MyDeal and Amazon need a lot of scale and there’s a lot of questions around how successful there things are.
“It’s yet to be seen what Amazon does in any meaningful way [but] I think they obviously are gaining traction.”
Clearly they cannot be ignored but it is no guarantee everyone else will fall over.
One of Knights’ tipped stocks was homewares retailer Adairs (ASX:ADH) which has been one of the ASX’s biggest ecommerce winners.
Adairs shares have up over 70 per cent in 12 months but the company still has a relatively small market share.
Knights noted it has a loyal customer base which would see it in good stead – 75 per cent of its sales were driven by Adairs’ ‘Linen Lovers’ loyalty program.
“They’ve cultivated a long relationship with existing customers, and our view is they’re sticky to their ecosystem,” he said.
“Yes, [Amazon] is a risk but with competition lifts the game of everyone. I think Amazon’s more a risk to similar competitors, such as Temple & Webster (ASX:TPW), the more pure play online guys.”
One additional perspective Stockhead received on this issue in recent months was from MyDeal (ASX:MYD) CEO Sean Senvirtne.
Speaking with Stockhead immediately prior to his company’s IPO in October last year, Senvirtne pointed to the example of US furniture retailer Wayfair to argue that it was possible to thrive alongside Amazon even where it was dominant.
Inevitably, even the most confident of ASX stocks and their investors will be watching Amazon’s next moves.
The most noteworthy plan of Amazon’s is to build a 200,000 square metre robotic fulfilment centre in Sydney’s west which will double its fulfilment capacity in Australia.
But it will not be the only ASX stock planning to utilise robotics. Online book seller Booktopia (ASX:BKG) plans to trial robots in its warehouse in the coming months. This would more than double the amount of stock it could hold.
And Woolworths (ASX:WOW) is planning robotics in distribution centres too.
It first unveiled these plans in June last year and yesterday it unveiled a $50 million fund to re-skill existing employees to take on technical and supervisory roles involving robots (among other company projects).
Of course Amazon is more than a retailer and it will be the same in Australia. Yesterday it announced it could create 50 jobs in Adelaide to be deployed across its Web Services subsidiary as well as Amazon Science.
The latter division will conduct new research programs to improve Amazon customers’ experiences.
In announcing the move, AWS executive Sarah Bassett declared: “Our new office in Adelaide demonstrates our ongoing commitment to invest in Australia, and the long-term potential we believe there is for our nation to be a leader in the global digital economy.”