- New research from Morgan Stanley shows the price discount between Amazon and major Australian retailers is getting larger for many goods
- With Amazon set to launch its “Prime” offering in Australia later this year, the bank says retailers will need to lower prices and invest in improving delivery services
- Heavy price discounting in the retail sector could delay when the RBA begins to lift interest rates
Prices for retail goods advertised on Amazon’s Australian website are now significantly cheaper than those offered by Australia’s major retailers.
That’s the finding of new research from Morgan Stanley’s Australian equity analyst team who say that after a slow start, Amazon appears to be learning more about the local Australian market and compete more aggressively.
“Amazon has rapidly improved its offer in Australia with the ‘Fulfillment by Amazon’ service (FBA) launching earlier this week,” the Morgan Stanley team says.
“Since day one, Amazon has expanded the width of its offer, lowered pricing considerably and improved delivery terms markedly.
“We think that it shows how quickly it is adapting its model.”
After a negligible difference when it launched, it’s clear that prices for many categories advertised on Amazon are now significantly cheaper than at other leading Australian retailers.
“At launch on December 5th 2017, our analysis suggested Amazon was cheaper in the grocery category and more expensive in Electronics,” Morgan Stanley says.
“Whilst the price gap in groceries has now closed, Amazon has created price gaps in Sports, Electronics and Apparel.”
Based on Morgan Stanley’s analysis, the average price discount for sports, electronics and apparel on Amazon now stands at 16%, 11% and 17% respectively.
For grocery items, the difference between the average price stands at just 1%, narrower than the 13% discount seen at Amazon’s launch.
Given Amazon has indicated that it will launch its Amazon Prime service in Australia later this year, Morgan Stanley says this will likely mean traditional retailers will need to respond by lowering prices and improving delivery services.
“Given the pace at which it has improved its offer its difficult to predict how quickly retailers will be impacted, but based on the improvement to date we think that it is increasingly likely that retailers will need to lower prices and invest in improving delivery times/cost,” it says.
While this will have ramifications for retailing margins and overall profitability for retailers, increased competition from Amazon could also have an impact on the outlook for Australian interest rates.
When the Reserve Bank of Australia (RBA) met earlier this month, it noted that “prices of consumer durables had declined further, indicating the ongoing influence of strong competition in the retail sector”.
With price pressures already so weak in Australia, any further discounting in the retail sector carries the potential to keep overall inflationary pressures below the RBA’s 2-3% target, something that would likely see interest rates remain at record-low for even longer than markets and economists currently expect.