Amazon.ca turns up heat on Canada sports retailers

Mon Nov 8, 2010 8:28am EST

* Amazon.ca to offer sporting goods, outdoor equipment

* Could take small market share from retailers

* Retailers could face pricing pressure, tighter margins

By Solarina Ho

TORONTO, Nov 8 (Reuters) - Amazon.com's (AMZN.O) Canadian site has added skates, snowboards and outdoor gear to its traditional line up of books, music and DVDs, posing a small but perhaps growing threat to retailers like Canadian Tire (CTC.TO) and Forzani Group FGL.TO.

Analysts say the Canadian market is small for the online retailing giant -- only about 5 percent of revenue compared to 50 percent from the U.S. division.

But they do not dismiss Canada's role.

"(Canada's) still a critically important market where, just like across the globe, it benefits (Amazon) to expand their product offering," said Frederick Moran, an analyst at The Benchmark Co. "Amazon is definitely in a reinvestment mode now to gear up for the economic expansion."

Longer term, Amazon.ca, which also offers electronics, watches, and home and garden products, could become a thorn for some Canadian retailers.

Shares of the online retailer, which soared over 145 percent in 2009, have risen about 28 percent so far this year.

After seeing a 30 percent rise in 2009, Canadian Tire shares have only risen modestly this year, up about 4 percent. It sells everything from paint and tools to sporting goods and outdoor equipment.

Forzani's shares have fared better, rising about 13 percent this year. But that falls well short of the roughly 98 percent spike the sporting goods retailer enjoyed in 2009. Forzani owns SportCheck and National Sports, among others.

Analysts expect impact to be limited for now, but they said acknowledged that Amazon's competitive pricing and shipping costs could force Canadian retailers to cut prices more aggressively, squeezing margins and hitting market share.

Lingering distrust of online shopping is a factor, but analysts also described sports equipment as "touch and feel" purchases. Saving a few dollars may not be enough for customers to buy online after they test equipment in a store.

"Can they take some customers away from a Canadian Tire or Forzani group? They probably will and you would expect some of that," said Edward Jones analyst Brian Yarbrough, citing U.S. trends. He did not expect to see a huge exodus.

Yarbrough said Amazon could take a 1 to 5 percent market share, but anything higher was unrealistic.

Moran said products found on Amazon.com -- which has made moves into the territory of traditional retailers and digital media -- will likely be on Amazon.ca eventually.

For now, the offerings are limited, although the company plans to continue expanding its product selection.

"Where does this eventually push out to with Amazon?" said Mackie Research Capital's Robert Cavallo, noting the impact of more direct competition could get "a little bit dicey."

"At this point, I just don't see this being a major detractor from the traditional brick-and-mortar." (Editing by Janet Guttsman)