Amazon warehouse lease in Dandenong to create jobs and put focus on costs

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Amazon warehouse lease in Dandenong to create jobs and put focus on costs

By Carolyn Cummins

Global online giant Amazon's commitment to a new warehouse in Melbourne's Dandenong will not only create many new jobs, but will also put the focus on the cost structures and store roll-outs of Australian retailers.

As reported last week in these pages, Amazon has signed a 24,000-square-metre lease in the Pellicano's M2 Industry Park in Dandenong South, Melbourne, which will provide access to the South Gippsland Highway, Monash Highway and Eastlink. The lease of the centre was facilitated by CBRE's Industrial & Logistics business.

Tthe Amazon Fulfillment center in Robbinsville Township, N.J. Amazon

Tthe Amazon Fulfillment center in Robbinsville Township, N.J. Amazon Credit: AP

Robert Bruce, Amazon's director of operations for Australia said: "This is just the start".

"Over time, we will bring thousands of new jobs to Australia and millions of dollars of investment as well as opening up the opportunity for thousands of Australian businesses to sell at home and abroad through Amazon Marketplace," Mr Bruce said.

Things to come: Amazon's Leipzig centre ships 100,000 boxes a day.

Things to come: Amazon's Leipzig centre ships 100,000 boxes a day.Credit: Amazon

"This new fulfilment centre will stock hundreds of thousands of products which will be available for delivery to customers across Australia when we launch our retail offering. We will be focusing on offering our Australian customers low prices on a great selection of products and can't wait to get started."

It is expected the Sydney-based site will be at the Goodman/Brickworks Oakdale Industrial Estate at Eastern Creek, which can accommodate about 80,000 square metres, which is the average size of Amazon fulfilment centres overseas.

According to Macquarie Equities analysts, the announcement of the new centre hints at Amazon opening up with Prime Now and Fresh in each capital city from "day one", as it is attempting to do currently in Singapore. They say that could be "pre Christmas 2017".

A new report on Amazon and its impact on Australian retailers by Macquarie Equities says Amazon will need broad product breadth and scale in distribution in order to overcome the key constraint of high logistics costs in the Australian market.

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"The implications of increased competition in Australia are not new. While in Amazon's case the format is different and areas of competitive advantage differ, the story remains primarily one of increased capacity in the industry and the potential for market share losses for incumbents," the brokers said.

"Should Amazon enter the Australian market, we believe a range of categories will face increased competition for market share. Most obvious amongst the retail sector are the department store/discount department store category, electrical/home appliances, sporting goods, apparel and to a lesser extent food.

"Department stores and discount department stores brick and mortar sales to grow at about 0.6 per cent, suggesting store contraction will now be a key priority in order to minimise losses of underperforming stores. We would go so far to suggest one of the majors needs to shut down entirely to improve sustainability of the category."

But, like many other observers are now saying, the Macquarie Equities team says they continue to believe Amazon will impact the market gradually over coming years but believe the impact is more than adequately factored into current pricing, particularly of the discretionary retailers.

UBS' Grant McCasker says after considering the Amazon threat in more detail, "we believe the risks are priced in".

For the past few months, the threat of Amazon's arrival has seen a sell-off in shopping centre real estate investments trusts.

But UBS has now said they have upgraded Scentre Group, GPT Group and Vicinity Centres to a buy recommendation from a neutral.

This comes two weeks out from when the main REIT's report their full-year results, when managers will again be grilled on the impact of Amazon.

And while the retailers will be under some pressure, the industrial property owners will looking for improvements as they hope Amazon looks at their warehouses for its expansion plans.

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