Amazon (AMZN, Financial) practically dominated cyber weekend sales, capturing 31% of online spending, while Best Buy (BBY, Financial) came in a distant second with 7.4%. Apart from these two companies, no other retailer was able to capture more than 5% of sales during the weekend, validating Amazon's dominance in online sales.
As an e-commerce giant, such numbers are indeed expected from Amazon, but the problem for other retailers is that, despite having a clear edge in terms of physical stores around the country and pumping billions of dollars into developing their online stores, they are still far from competing with Amazon on a level playing field.
Amazon’s overall sales numbers in North America have surged from a mere $5.86 billion in 2006 to $63.7 billion in 2016. The bad news for other retailers is that the growth pace in the world’s largest retail market is still stunning. Amazon’s annual revenues in North America have grown 18.95%, 22.76% and 25.33% between 2013 and 2015. Growth has accelerated despite them spending billions year after year.
The growth of smartphones and the ever-improving online payment systems have jointly made people much more comfortable about shopping online. The sheer convenience of sitting at home and ordering things to be delivered to your doorstep is indeed irresistible, and the growth rate of the e-commerce market stands testimony to people’s changing preferences.
There are still several parts of the retail business that will be a difficult nut to crack for e-commerce players, such as groceries or niche segments like home improvement products, but they are only a small part of the trillion-dollar retail industry. According to the e-marketer forecast shown in the graph above, e-commerce sales are going to accelerate from $1.5 trillion in 2015 to $4.05 trillion by 2020 - that is nearly three times the current size.
The problem for physical retailers is that this is not a new market being created by major e-commerce players like Amazon, but more of a shift in the existing market towards a new system of buying and selling products. To put it simply, Amazon is not creating new customers; they are, in fact, stealing customers from their physical counterparts.
If Amazon continues to hold its lead over companies like Wal-Mart (WMT, Financial), Target (TGT, Financial), Kohl’s (KSS, Financial) and other brick and mortar stores, the company is only going to eat away further at their collective market share. The bigger Amazon gets, the more difficult it will be to catch up. The only way forward now is to aggressively pursue their own online agendas, but is it too little, too late?
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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