The e-commerce market in the U.S. has witnessed rapid growth in the last 10 years, reaching $341 billion in annual sales in 2015. Despite the wildfire increase, according to Census data, U.S. retail e-commerce sales for the third quarter of 2016 were $101.3 billion, while total retail sales were estimated at $1,212.5 billion. That means online retail, or web sales, in the third quarter accounted for a mere 8.4% of total retail volume across all channels.
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There is plenty of room for growth when it comes to online shopping because for every 8.4 dollars that was spent online during the third quarter this year, 91.6 dollars was spent through traditional retail channels, and if the recent online sales trend is anything to go by, then Amazon (AMZN, Financial) is going to walk away with a bulk of that transition.
Online sales during this year’s holiday season has already broken several records, and Amazon walked away with a lion's share of online retail sales.
“In 2016, Black Friday went digital. Continuing the surge of a record-breaking Thanksgiving Day online, Friday's internet retail numbers blew past the projected $3.05 billion in revenue and 11.3 percent year-over-year growth rate by almost $300 million for a record $3.34 billion and a massive 21.6 percent year-over-year growth rate,” according to a Mashable article.
Records are being broken because more people are shifting their buying habits to online mediums, and they are getting increasingly comfortable making their purchases through Amazon and other retail portals. The e-commerce transition has been happening over the past several years and almost all the retailers have their skin in the game now. They have been increasing their investments in technology, acquiring companies and keep talking about how they are going to improve their e-commerce sales.
But despite increasing efforts from all the retailers to crack the online code, Amazon is running away with a huge share of the market. Online sales in the U.S. are expected to reach $523 billion in the next five years, up 56% from $335 billion in 2015, and mobile devices are expected to be a key driver in that growth, Forrester Research says.
The double-digit growth trend in online sales looks set to continue for the next several years. If Amazon keeps carving out the biggest portion of that every quarter, every year, what’s going to happen is a massive erosion of physical retail. The market is still the same, it’s just the medium that’s changing.
The bigger it gets, the stronger Amazon will become, and big box retailers only have themselves to blame because they were the skeptical ones when online retail was just a fledgling industry. They had every opportunity to watch Amazon grow from strength to strength, as well as the opportunity to out-invest and outperform Amazon in this space, but they sat back and said, “Let’s see where this upstart goes. In a few years it’ll go belly up and we can just go back to what we’re doing.”
That’s very dangerous thinking, and that’s exactly what has allowed Amazon to create such a strong lead and wide moat right under their noses. They didn’t do anything special other than consistently pile on the benefits for their customers. Simple horse sense is all it took and, fortunately, its competitors lacked that equine resolve.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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