Amazon Taking Charge in Australia - What’s in Store for ASX-Listed Retailers

Summary

• Market speculates retail giant Amazon’s expansion plans in Australia via construction of new warehouses with a surge in online demand for products, as customers sit home due to COVID-19.
• Amazon Australia to open its first fulfilment centre at Goodman’s Port Industry Park in Queensland before Christmas 2020, enabling faster deliveries in the region.
• Goodman Group has unveiled increased demand for both temporary and permanent space from customers in the food, consumer goods and logistics sectors.
• Australian retail sector is strongly supporting the current shift to online shopping with incumbent players recording uptick in revenue, active customer base and impressive overall trading performance.

American multinational technology company, Amazon.com, focussed on e-commerce, cloud computing, digital streaming and artificial intelligence, is planning to build new facilities in Australia, given the surging demand for products from the online platform with people confined to their homes due to the coronavirus (COVID-19) pandemic.

Amazon to Expand Operations in Australia - The e-commerce giant has experienced great success in Australia, where it entered in December 2017 and is now offering 125 million products across 30 different categories.

The trend is expected to improve further, as consumers are highly reliant on online sources for bulk purchasing a variety of goods from clothing to groceries. Owing to the fear of contracting coronavirus, number of people are sceptical to step out.

Even though Australia has begun to reopen its economy and lifting off social distancing restrictions in a staged manner, footfall in malls and physical stores is still at a low with few retail giants even closing some stores, as people prefer online platforms to buy everything.

The speculations around Amazon’s expansion in Australia can be attributed to the growing demand for products on the e-commerce giant’s online platform. Currently, the company has three warehouses in the country, with the first facility opened in Melbourne in December 2017, another in Sydney in August 2018 and one in Perth in November 2019.

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First Fulfilment Centre in Queensland - The market reports follow a recent expansion announcement by Amazon Australia on 11 June 2020, unveiling the opening of its first fulfilment centre in Queensland.

Located at Goodman’s Port Industry Park in Lytton, Brisbane, the new centre is expected to start operations by end-2020 and benefit small & medium sized businesses based in Queensland. Moreover, the new centre is anticipated to generate around 200 job opportunities, thereby aiding the local economy.

Globally, Goodman Group (ASX: GMG) has a long-standing relationship with Amazon, as the industrial property giant developed the company’s first fulfilment centre in Moorebank. Goodman Group, in its early May market update, informed that despite the challenging global environment, portfolio fundamentals and development activity are being driven by demand in the food, consumer goods, logistics, online and digital economy.

The Group, with ~ $ 55.1 billion of total assets under management (AUM) as at 31 March 2020, reported that there has been an increased demand for both temporary and permanent space in the food, consumer goods and logistics sectors, majorly related to e-commerce operators and those shifting to the online platform. In addition, the Group experienced limited closure or disruption of warehouse facilities over the past few challenging months.

In general, given the current economic and healthcare crisis due to COVID-19, globally, the logistics and warehousing sectors are playing a crucial role in delivering essential infrastructure and enabling distribution of critical products. The trends of ongoing supply chain consolidation, online expansion and growth in the digital economy have been very accelerated due to the pandemic.

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Amazon First Quarter Robust Performance - During the first quarter of 2020 (Q120 ended 31 March 2020), Amazon.com’s net sales rose 26% to USD 75.5 billion and net income decreased to USD 2.5 billion from the same period a year ago.

In the first quarter 2020 results, Amazon founder and CEO Jeff Bezos commented that the current crisis is demonstrating adaptability and durability of the business as never before, from online shopping to AWS to Prime Video and Fire TV, but it is also the hardest time the company has ever faced.

He has also highlighted that in the second quarter 2020, the company is expecting to make around USD 4 billion or more in operating profit under normal circumstances. However, given the circumstances aren’t normal, the company plans to allocate this profit into COVID-19 related expenses.

Such expenses would cover getting products to customers and keeping employees safe including investments in increased cleanliness at the facilities, providing protective equipment, less efficient process paths that would enable proper social distancing, higher wages for hourly teams, and hundreds of millions to build Amazon’s own COVID-19 testing capabilities.

The expansionary plans of Amazon.com could be a subject of stiff competition to the retailers in Australia, specifically those without online presence, as it is one of the most rapidly growing large companies, globally, with a market capitalisation of USD 1.34 trillion, as on 26 June 2020.

Australia Retail Sector Landscape

Australia has a well-established retail sector with incumbent players boasting of billions of dollars in market capitalisation and a strong online presence, which helps in reaching a larger consumer base as well as providing a myriad of product options.

For instance, Perth-based retail giant Wesfarmers Limited (ASX: WES), established in 1914, recorded an 89% growth in its online sales in a calendar year-to-date period while on a financial year-to-date basis, the group sales grew 60% to $ 1.4 billion, as reported on 9 June 2020. This demonstrates the Group’s significant investments in e-commerce capabilities and a large existing customer base.

To Know More, Read: With numerous people at home amid COVID-19, Wesfarmers gain traction

Likewise, the 100-year old Coles Group Limited (ASX: COL) has a network of over 2,500 retail outlets and leading brands in supermarkets, liquor, fuel, convenience and financial services. The Group’s third quarter FY20 results indicated a 12.9% increase in revenue to $ 9.2 billion, as the Group continued to make investments in online capacity to support the growing demand for online delivery.

Australia-based retail giant, Woolworths Group Limited (ASX: WOW), operating general merchandise consumer stores and supermarkets, also announced plans on 23 June 2020, to develop two new facilities in Sydney, Australia, subject to receiving NSW Government planning approval. If the plan materialises, construction of an automated regional distribution centre and a semi-automated national distribution centre is expected to be completed by end-2023, with benefits to be realised around FY25.

Another Australian player, Kogan.com (ASX: KGN), the holding company for several retail and services businesses, has reported a 100% growth in its gross sales and over 130% increase in gross profits in 4QTDFY20, as announced on 5 June 2020.

Interesting Read: A look at Kogan.com Share Price: A rich list e-tailer