Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
How JB HiFi beat Amazon at their own game
Predictions in 2020 were for the Australian arm of US juggernaut, Amazon, to have dominated local retail sales in just a few years. In 2020 alone, analysts predict that Amazon’s gross merchandise value – or the total value of products sold – grew three times faster than that of JB Hi-Fi. But this all changed when the pandemic hit.
Domestic retailers were given a lifeline and quickly regained market share from international retailers given their ability to deliver products to the consumer more quickly than the international players. Owing to border closures and a backlog of cargo ships at ports, massive supply disruptions helped Aussie retailers gain an upper hand.
Suffering retailers such as JB Hi-Fi and Harvey Norman were able to regain lost ground from Amazon. The last two years have been happy days for local retailers, but unfortunately, it will be short-lived.
Morningstar says “despite the speed bump, Amazon still spells trouble for consumer electronics retailers in Australia. The share prices of JB Hi-Fi and Harvey Norman don’t adequately reflect the risk of Amazon succeeding in Australia. We expect Amazon’s aggressive investments in its local logistics network and its local customer base to underpin strong domestic sales growth in the medium term, to their detriment.”
The Amazon juggernaut is far from dead. The last two years merely stunted growth for a short time as it missed the key Christmas 2021 trading period. But that’s about all it did. Amazon’s Australian growth story hit a little speed hump but didn’t put the company off track. The medium-longer-term growth story is still intact.
Morningstar expects “Amazon Australia to grow faster than its local competitors and to maintain intense price-based competition in the medium term, hindering JB Hi-Fi’s and Harvey Norman’s market shares and operating margins.”
The research house says, “Two retailing categories Amazon excels in globally are consumer electronics and books. The consumer electronics and home appliances category is highly amenable to e-commerce given largely commoditised products and low fulfilment costs relative to the price of the goods. Consumers generally purchase fewer items but higher value items relative to groceries, for example, which means the relative labour and shipping costs are lower for electronics and appliances.”
It names JB Hi-Fi, Harvey Norman and Kogan as the most vulnerable retailers.
Moningstar’s fair value targer prices for the three companies are:
- JB Hi-Fi (ASX:JBH) – $32.00 – Overvalued
- Harvey Norman (ASX:HVN) $3.71 – Overvalued
- Kogan (ASX:KGN) – $11.70 – Material Discount
Morningstar says, “Amazon Australia’s gross merchandise value was $3.3 billion in 2021, well below our prior forecast of $4.8 billion. However, Amazon’s ability to compete long-term is unaffected.”
It expects Amazon’s local fulfilment capacity to more than double in 2022 which should put it back on track to regain lost market share. In the longer term, Amazon’s Australian GVM will more than triple in the next five years, versus Australian e-commerce market growth of 10% compound. To tackle the Amazon enslaught, Morningstar recommends Kogan as its global best idea and is “best placed to grow alongside Amazon, with full exposure to the structural shift in e-commerce.”
