Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

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Amazon Arrives

US e-commerce giant Amazon is one of the great disrupters of the past 20 years, and is likely to continue to disrupt for the next 20. What does having Amazon in our backyard mean for local businesses?

Starting as an online bookstore in 1995, Amazon’s growth has been phenomenal, generating global revenues of US$136 billion in 2016. Yet its footprint in New Zealand has been limited. There is no amazon.co.nz website, it typically has restricted delivery options to New Zealand consumers and, until recently, had no physical presence in Australasia.

This is all likely to change rapidly with the introduction of the Amazon Prime streaming service and the recent confirmation of a physical presence in Australia. The implications of the latter in particular will be far and wide, and it won’t just be traditional retailers that will be impacted.

Amazon has disrupted a number of retail markets around the world, most notably in the US and Europe where it has captured around 31% of all online sales in both the US and Germany, and a slightly smaller but still impressive 16% in the UK. The high internet penetration (88%) and relatively low level of e-commerce sales (7% of total retail), makes New Zealand ideal for disruption in the online retail space. The degree of penetration is largely dependent on the level of domestic competition.

In other more penetrated markets traditional retailers have been more responsive to the threat of e-commerce. In contrast, New Zealand’s online space has been left relatively wanting, with the exception of TradeMe in the consumer–to-consumer (C2C) segment. Electronics, toys, and home/DIY are typically the first retail segments targeted by Amazon and we expect the electronics sellers to be most at risk from Amazon’s Australasian entry.

Aside from retail, Amazon’s ambitions extend to logistics, having been born out of a desire to offer a differentiated service and secure delivery control. By owning the supply chain Amazon is able to offer same day, or in some cases 2-hour delivery to Amazon Prime subscribers, thereby competing on service as well as price.

Amazon has become a logistics consolidator by now selling forwarding capacity to external parties. However, this is unlikely to be an issue for the New Zealand freight market anytime soon given the (lack of) population density and therefore potential scale in New Zealand. In fact, the New Zealand parcel market will benefit from Amazon’s arrival in Australia given the likely increase in “last mile” package delivery to New Zealand consumers.

Amazon’s disruptive powers have been displayed globally and we recognise the threat and opportunity to New Zealand market participants, particularly in the logistics and retail sectors. However, while Amazon will likely take online share, an increase in total e-commerce sales could have a positive flow on effect to brand owners and retailers on its marketplace, particularly those that are Prime eligible, as well as an increase in demand for “last mile” delivery options.

By Andy Bowley
Head of Research