Amazon is coming to Australia and investors are worried about it.
Short sellers are energetically promoting the bad news story so they can profit. The result has been a savage sell-off in some shares so they now represent good buying value.
The concerns focus on the effect the entry of the online shopping juggernaut to Australia will have on traditional retailers. Within a few years consumers will do most of their shopping online, so the story goes. Our retailers are doomed.
For example shares in Harvey Norman have fallen 24 per cent in the last year. JB HiFi shares are down 20 per cent and Myer’s have fallen 36 per cent, though it has had some other problems too. Woolworths shares held up until Amazon moved into fresh produce in the US in August. They are down 8 per cent since.
Even shares in shopping centre operators have been affected. When all these retailers lose half their business rents will have to fall sharply it is claimed.
Westfield shares are down 18 per cent over the year and Scentre Group 13 per cent. The All Ordinaries Index has risen 4 per cent in the year.
Gerry Harvey, Executive Chairman of Harvey Norman was recently asked about the threat Amazon poses to his business.
He said Amazon has been in business for 20 years in the US and so far has gained just three per cent of the retail market so he isn’t worried.
Cromwell Property Group, owner of a range of commercial property, has analysed which products US shoppers’ are inclined to buy online and which they like to shop for in person. Books are the most likely products to be bought online, closely followed by electronic goods. `
Office supplies, sporting goods and pet products are sometimes bought online. Tools, household goods and clothing are less likely to be, while shoppers are least likely to buy food and groceries online.
This suggests Woolworths and Coles have nothing to fear. Harvey Norman and JB Hifi will probably lose some business long term. Westfield and Scentre Group are unlikely to have to cut their rents much. All appear good value at current prices. Cromwell has increased exposure to shopping centres recently.
Many other industries are also being disrupted or threatened by new technology. These include newspaper publishers, television channels, travel agencies and taxi companies.
Their management can meet the challenges if they are innovative, energetic and adaptive in responding. They need to fight back in developing their online presence. These disrupted companies have also been sold off and some appear good value at present.