Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

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Thematic (Sector/Industry)

Australia Consumer discretionary / Thematic (Sector/Industry)

<div class="content-highlight">So far, Australian retailers haven't felt <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com Inc (AMZN US)</a> AU's presence, but the threat is real.</div><hr>Amazon AU Forcing Traditional Retailers to Up the Ante on E-CommerceAustralian retailers saw little from Amazon Australia, or Amazon AU, in fiscal 2018, but we think this will gradually change. We expect Amazon AU's revenue will grow from next to nothing to AUD 24 billion in fiscal 2028, representing a sizable 5% of total Australian retail spending. Amazon AU's strategy is to be the online retailer of choice, not a niche player. We expect Amazon AU to win the hearts and minds of Australian consumers, but not by dropping prices dramatically. Instead, we see the online giant offering industry-leading delivery times and the lowest delivery fees, while also locking in customer loyalty with Prime. Some Australian retailers offer quicker deliveries than Amazon AU and leading click-and-collect platforms are unlikely to be beaten by a pure online player, but we expect Amazon AU to improve delivery times as the national distribution network expands, capturing market share. Amazon AU Prime already has the cheapest delivery fees, and shipping costs for nonmembers are at the lower end of the range.Most Retailers Fairly Priced or Overvalued, Except for Turnaround <a href="https://www.smartkarma.com/entities/577" target="_blank" data-smartkarma-citation="entities:577:1">Myer Holdings (MYR AU)</a>Amazon AU is likely to hit the hardest those brick-and-mortar retailers operating in consolidated markets and selling product categories with high online penetration. For instance, the department store sector is one of the more challenged and we expect significant store closures as a result of a shrinking addressable market. Hardware and auto parts are among the more fortunate categories, due to high shipping costs relative to product values and the immediacy of need. The market has caught on to this fact but is either overly positive or negative, with too much upside priced in for <a href="https://www.smartkarma.com/entities/1104" target="_blank" data-smartkarma-citation="entities:1104:1">Wesfarmers Ltd (WES AU)</a> and <a href="https://www.smartkarma.com/entities/6373" target="_blank" data-smartkarma-citation="entities:6373:1">Super Retail (SUL AU)</a> and too much downside for Myer.<h2>Key Takeaways</h2><ul>
<li>We don't predict an Australian "retail Armageddon", but rather a slow demise of the traditional retail model based solely on physical stores, especially in categories with relatively high online penetration.</li>
<li>On average, we forecast gross profit margins to be flat long term, kept in check by fierce competition, while rising e-commerce expenses are offset by rationalising store networks to stabilise EBIT margins.</li>
</ul>Analysts: Johannes Faul and Violet Li

So far, Australian retailers haven't felt Amazon.com Inc (AMZN US) AU's presence, but the threat is real.Amazon AU Forcing Traditional Retailers to Up the Ante on E-CommerceAustralian retailers saw little from Amazon Australia, or Amazon AU, in fiscal 2018, but we think this will gradually change. We expect Amazon AU's revenue will grow from next to nothing to AUD 24 billion in fiscal 2028, representing a sizable 5% of total Australian retail spending. Amazon AU's strategy is to be the online retailer of choice, not a niche player. We expect Amazon AU to win the hearts and minds of Australian consumers, but not by dropping prices dramatically. Instead, we see the online giant offering industry-leading delivery times and the lowest delivery fees, while also locking in customer loyalty with Prime. Some Australian retailers offer quicker deliveries than Amazon AU and leading click-and-collect platforms are unlikely to be beaten by a pure online player, but we expect Amazon AU to improve delivery times as the national distribution network expands, capturing market share. Amazon AU Prime already has the cheapest delivery fees, and shipping costs for nonmembers are at the lower end of the range.Most Retailers Fairly Priced or Overvalued, Except for Turnaround Myer Holdings (MYR AU)Amazon AU is likely to hit the hardest those brick-and-mortar retailers operating in consolidated markets and selling product categories with high online penetration. For instance, the department store sector is one of the more challenged and we expect significant store closures as a result of a shrinking addressable market. Hardware and auto parts are among the more fortunate categories, due to high shipping costs relative to product values and the immediacy of need. The market has caught on to this fact but is either overly positive or negative, with too much upside priced in for Wesfarmers Ltd (WES AU) and Super Retail (SUL AU) and too much downside for Myer.Key Takeaways
We don't predict an Australian "retail Armageddon", but rather a slow demise of the traditional retail model based solely on physical stores, especially in categories with relatively high online penetration.
On average, we forecast gross profit margins to be flat long term, kept in check by fierce competition, while rising e-commerce expenses are offset by rationalising store networks to stabilise EBIT margins.
Analysts: Johannes Faul and Violet Li

Aussie Retail Investors: Don't Be Fooled by Amazon's Slow Start