Glenn Freeman: I'm Glenn Freeman for Morningstar, and I'm joined today by Johannes Faul, Morningstar equity analyst.

Johannes, thanks for your time today.

Johannes Faul: Thanks for having me, Glenn.

Freeman: Now, Johannes, just firstly, when is Amazon due to start trading inside Australia? We've heard various media reports about it just lately.

Faul: Well, they are tipped to start trading this Thursday as you just mentioned. And obviously, that's the first day they will be trading, so they will be starting from zero pretty much in Australia. And it will take a number of years for them to have a significant impact, in our view, on the existing retailers.

Our view of Amazon is really – Amazon is more of a symptom of what's happening and that's consumers migrating online. Amazon just captures that consumer very well. So, in our view, Amazon is going to capture a lot of the online retail sales.

So, in five years' time, we think they will be close to a fifth of the online sales and up to 2 per cent of the Australian retail sales in total. So, it will take some time though to get there. It will take five years. So, in the very near term, obviously, it will have an impact on investors' sentiment. But in our view, less so on the actual sales figures of income in retailers.

Freeman: And which Australian companies do you think will be most affected by the entry of Amazon?

Faul: Well, when we think about stocks which will be impacted, we have to look at which categories, which sectors within retail have the highest penetration. When we talk about online penetration, we mean what percentage of sales are already being sold through the online channel.

And consumer electronics as well as sales in department stores has a very high online penetration. So, we expect those categories to be impacted quite significantly. Whereas, other categories, such as food, the penetration is much less. So, it's around 3 per cent. So, even if Amazon rolls out their fresh offering in Australia, the impact on the sales of the big two supermarkets will be quite manageable in our view, at least in the near term.

Freeman: And is this another front in something of a perfect storm for Australian retailers?

Faul: You are absolutely right in saying that the very near-term, the next 12 months, don't look very flash due to exactly those factors and those headwinds. So, in that instance, in the near term, it doesn't look as great as it could.

But we are much more concerned with our long-term outlook and also the strategies that the retailers in Australia implement to react and to adapt to the new environment. And therefore, we find it very important for retailers to invest in their online platforms or their omnichannel capabilities as they are very often referred to and grow their sales online.

And in our view, that's their best defense against competitors such as Amazon or any other pure online player and also capturing the sales growth going forward, because in our view, going back to our initial statement really is that the consumer will move more and more online in terms of where they spend their money.

Freeman: And lastly, are Australian retailers as worried by the entry of Amazon as Australian press reports would indicate? And in your view, should they be?

Faul: You know what, I think that there is no retailer that we know that's oblivious of the fact that Amazon is coming. And again, they have strategies in place and they thought about it internally for many months if not years. Amazon had announced in April that it was coming to Australia, but it had been rumored for much longer that it will to our shores. So, I think that the retailers know what's coming their way and now it really depends on how they implement their strategies and how successful their strategies will be in Australia.

In terms of from an investors' standpoint, how much is priced in, we've seen retail stocks retreat quite significantly, again, in categories where we have high online penetration and again, that's where we have concerns predominantly. We've seen those shares pull back quite a bit. So, a fair amount of the news flow and the negativity is priced in. However, it's going to play out over a very long period of time. And if Amazon is as successful in Australia as it has been in the U.S., there might be more pain to come. But again, this will take years to play out.

Freeman: Thanks for your time today, Johannes.

Faul: Thanks for having me, Glenn.

Freeman: I'm Glenn Freeman for Morningstar. Thanks for watching.