On the heels of the most recent Amazon Prime Day, it makes sense to look at this extraordinary company and how far it has come.
Founded in 1994, Amazon has evolved over the past 25 years from a predominately online bookstore to the retailer of choice for consumers in the U.S. and around the world. Amazon has upended the retail industry by democratizing convenience. By providing the consumer exactly what they want in almost the same amount of time it takes to go to the local mall or department store, Amazon has revolutionized the way we shop. At the same time, the company has forced an entire industry to scramble to keep up.
Amazon continues to evolve today, adding original programming, gaming, home automation, cloud services, logistics, brick-and-mortar retail (Whole Foods and Amazon Go stores), a new pharmacy experience (PillPack) and extensive mobile capabilities. By perpetually expanding its addressable market, Amazon has become a larger and larger piece of our daily routines.
While the numbers are still trickling in (and some won’t be disclosed), it is estimated that consumers purchased more than 175 million items on Prime Day, which was held on July 15 and 16 this year. That figure tops last year’s Black Friday and Cyber Monday totals combined! Total sales amounted to an estimated $7.16 billion dollars. Retailers with annual revenue over $1 billion experienced a +72% spike in sales compared to an average week, according to Adobe Analytics.
Prime Day has officially become the Black Friday of the summer, even bringing in Taylor Swift to headline a subscriber-only concert. Competitors from Walmart to Best Buy have now begun offering their own discounts and promotions. But what does the future hold? How much bigger can Amazon get? Let’s take a look at the company’s current market penetration:
• 300 million Amazon users
• 2 million Amazon third-party partners
• $232.9 billion in 2018 net sales; +31% growth year-over-year
• 37.7% market share of U.S. retail ecommerce
• 5% market share of total U.S. retail sales
Those last two figures are particularly interesting. Amazon currently captures 38% of all US retail ecommerce transactions. That is astounding. However, the company only has 5% market share of total U.S. retail transactions. That is because retail ecommerce only represents 14.3% of total U.S. retail sales ($517 billion out of a total $3.68 trillion in 2018). With ecommerce growing at +15% per year, Amazon has a long runaway for outsized growth moving forward. In addition, the company is just starting to capture a portion of the brick-and-mortar pie.
It is worth taking a moment to recognize the profound impact Amazon has had on consumer preferences and the retail industry at large. And they might just be getting started.
In a world fueled by technological change, it is critically important to understand if your investments are disruptors or are being disrupted. While you don’t have to own richly valued technology names, you would be well-served to avoid the companies that they are leaving in their wake.
John Lueken is the executive vice president and chief investment strategist at CapWealth. This column was published in The Tennessean on Sunday, Aug. 4, 2019.