JB Hi-Fi and Harvey Norman Brace for Impact from US Giant Amazon

JBH Share Price & HVN Share Price faltering

Aussie retailers JB Hi-Fi Ltd [ASX:JBH] and Harvey Norman Holdings Ltd [ASX:HVN] continued their downward trend. Shareholders can blame the looming arrival of Amazon. The US retailer boasts cheaper margins. Analysts expect local businesses will need to address that with a 10% cut on prices.

Will Australia adopt Amazon?

Aussie consumers are eager for the arrival of the US retailer. Online searches are up by 93% since July. Clearly Amazon will be in demand. But this doesn’t mean local retailers won’t be able to compete.

Citi believes Amazon will reach an 8% share of the market in five years and climb to 11% within a decade. However, local businesses should see recovery after five years according to the analysts. The question then is, how hard will Amazon’s impact be? And how quickly can retailers get back on their feet?

JB Hi-Fi CEO Richard Murray stood firm about the company’s future. Discussing their commitment to a low cost business model to the Macquarie investment conference he said:

How low will they go?

 As JB Hi-Fi and Harvey Norman shares continue to fall, the question is where the bottom will be? Citi has dropped both retailers’ price targets for the next 12 months. JB Hi-Fi shares are expected to fall from $28.50 to $18.50. Harvey Norman is targeted to drop from $4.80 to $3.20.

The question investors need to be asking themselves is how much they agree with the analysis. Short term, local retailers should be ready for a hard fight. Whether they can rally in five years though is going to be testament to how much competition they can endure. Either way, expect a bumpy ride as the price war erupts.

Regards,

 Ryan Clarkson-Ledward


Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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