In the past two months, we’ve learnt that Catch is shutting down, while Amazon managed 33% revenue growth in Australia in 2024. The online market is consolidating and likely to do so further over the next five years. For now, Amazon’s growth is more so at the expense of other pure play retailers including eBay. However, given Amazon is taking close to one-third of all the growth in retail, eventually it will impact major ASX-listed companies. We remain cautious on impact for JB Hi-Fi, Wesfarmers and Harvey Norman. 

Amazon recently sent a letter to a number vendors on its first-party (1P) platform informing them they would move to third-party (3P). What’s the change and why?  Under 1P, Amazon takes the inventory and price risk. Under 3P, the vendor (brand owner) takes these risks. Australian retail profit margins are generally higher than five years ago with gross margins better than feared. In our view, a key reason is that online retailers are less aggressive on price. Amazon’s shift is a good example of the shift in mindset. We expect retailers to sustain higher gross margins. The problem is their sales growth may remain underwhelming relative to operating cost growth.