Outspoken retail billionaire Gerry Harvey says the market has overestimated how quickly Amazon could get land in Australia, and start delivering quickly.
Harvey Norman earnings report
Retailer Harvey Norman reports a 39 per cent increase in half-year net profit.
“Amazon to my knowledge haven’t even bought a block of land in Australia,” the chairman of furniture and whitegoods chain Harvey Norman said. “Let’s assume I buy a block of land tomorrow. I’ve got to buy it, pay for it, put in a development application. If that happens within three years, that’s very quick.”
“And I read that Amazon is going to be fully operational in late 2018,” he told Fairfax Media.
Amazon has appointed CBRE in its search for land, and is expected to secure at least four large warehouses and a few smaller warehouses in Australia. Its public relations firm Weber Shandwick did not answer when asked whether Amazon had secured land in Australia yet.
Mr Harvey said Australia – with its low population density and high labour costs – should be well down the list of places for Amazon to expand.
“For their model to work they would need 50 warehouses in Australia. Start with two – one in Sydney and one in Melbourne – and then it’s how do you deliver? That’s the best-case scenario.”
“I know how long it takes.
“I know how long it takes”: Retail billionaire Gerry Harvey says said Australia should be well down the list of places for Amazon to expand. Photo: Ben Rushton
“I bought [land in] Macgregor [Queensland] for about $18 million, say 11 months ago. I settled six months ago and I’m still trying to get council approval, am hoping for approval within 12 months.”
Retail expert Glenn Carmody, of professional services firm EY, said: “I think given the geographical challenges and population density of our market there may be an argument that Amazon would consider acquiring the distribution and logistics that they need to scale up rather than build.”
“They don’t appear to have done this in other markets – I suspect they back themselves to build cheaper than buy – but we do have some unique challenges that may bring this into play,” Mr Carmody said.
I suspect they back themselves to build cheaper than buy.
Former Amazon executive Brittain Ladd
Harvey Norman, electronics retailer JB Hi-Fi, auto, sports and leisure retailer Super Retail Group, baby goods retailer Baby Bunting, and department store Myer are among retailers to endure double-digit share price declines this year, as retailers complain constant discounting and the growth of online shopping has created the toughest conditions in years.
The forecasts for Amazon’s Australian sales differ: Macquarie has tipped it would nab $14.5 billion in Australian sales by 2025, whereas fund manager Grant Berry suggested the online marketplace would be lucky to nab 5 per cent of Australian retail sales even over eight years.
Consultancy Deloitte was more bullish about Amazon’s prospects, saying it would “disrupt almost every retail category”, lead to further growth in online retailing, and push down prices and profit margins.
“Amazon’s entry is expected to have a huge effect on the retail landscape over the coming years,” it said.
“The biggest changes – increasing online expenditure and competition – will force retailers to step up or lose market share, as prices and other forms of competition intensify.”
In addition, Deloitte said Amazon would create opportunities for small opportunities to sell their wares to a huge audience, but crush big retailers.
“The bigger the retailer, the more of a threat Amazon’s entry will be,” it said. “Amazon’s most direct competitors are department stores and other large retailers with a wide variety of products. The competitive advantage of having a one-stop shop for just about anything is expected to be eroded as Amazon establishes itself in the market.”
Banking giant ANZ, meanwhile, said Amazon would heat up competition in the mid market, between $10 and $100 million in sales, rather than small retailers or major ones.
“There’s been a lot of talk around Amazon’s entry to the market,” chief risk officer Nigel Williams said in an investor briefing.
“It’s all in that $10 and $100 million-type bracket led by price-led competition.”