Here comes Amazon.com

Local retailers should be fearful

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published November 13, 2013 10:02 am AEDT

Wesfarmers (ASX: WES) boss Richard Goyder remarked last week that Amazon.com was the 'other big gorilla on our doorstep".

Well, Amazon.com (NASDAQ: AMZN) has arrived, with its Australian e-book shop and Kindle store going live this morning. Several Kindle tablets also went on sale at Big W – owned by Woolworths (ASX: WOW), and consumer electronics retailer Dick Smith.

The new Kindle store offers more than 2 million e-books, including from a wide range of Australian authors. More than 26,000 e-books are being offered free, while 700,000 are priced at $3.99 or less, and 1.4 million for less than $10 bucks. The Australian store differs from the US store in that consumers can buy books in Australian dollars, and offers a wider variety of local authors.

Amazon's self-publishing scheme, the Kindle Direct Publishing program is now available locally as well, meaning Australian authors can now choose to be paid in Australian dollars.

Amazon's tablets are not money spinners for the company, but lock the user into the company's e-books ecosystem. E-books sold by Amazon through the Kindle store can only be read by Amazon tablets, or on Kindle apps for Apple's iPad and Android tablets, but not on other e-book readers from makers such as Sony or Kobo. Amazon's competitors all sell books in ePub or PDF format that can be read on many different devices.

What is a huge concern for local retailers is that Amazon in the US doesn't just sell books anymore, but has diversified into groceries, clothing, apparel, house and garden products, tools, computers and even automotive and industrial products.

That could have a huge impact on our big two retailers, Coles – owned by Wesfarmers, and Woolworths as well as their subsidiaries including Big-W, Kmart, Target, Bunnings, Masters and their liquor stores such as BWS, Dan Murphy's and First Choice Liquor. But they won't be alone in fearing the arrival of the US giant. Department store retailers David Jones (ASX: DJS) and Myer Holdings (ASX: MYR) could also find themselves competing against Amazon.

Foolish takeaway

While Amazon's initial launch is primarily e-books and tablets, it may not be too long before its Australian online store begins offering products that will compete with local retailers.

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