Amazon is one of the largest companies in the world in terms of capitalization. It has sparked a revolution in e-commerce emulated by startups the world over. It is the benchmark for US e-commerce companies. However, there are some business analysts who consider its continuing growth as a reason for the decline of traditional retailers.
However, Amazon is not a single service company. It is not only into online retail but also into several other products including cloud services and premium retail stores. Amazon’s revenue growth is because of a lot of these factors, including the growth of Amazon Web Services (AWS) that grew by more than 42% to $17.1 billion in 2017. The Amazon US operations, excluding AWS, grew by more than 30% to $107.3 billion. This amount includes e-commerce, subscriptions, and product sales.
Growth of E-commerce in the US
Notably, Amazon is the largest e-commerce site in the US. For 2018, an estimated 230 million Americans will buy online, resulting in $474 billion in sales. This figure includes retailers like motor vehicle and parts dealers, gas stations, supermarkets, and grocery stores. These segments do not have a large impact on e-commerce because online sales comprise only a small percentage equivalent to roughly 9% of total retail sales. Excluding market segments with limited online sales, e-commerce percentage would increase to 20%.
E-commerce is still growing. However, there are some segments of sales where it might not be able to totally replace. One advantage of e-commerce companies is their capability to diversify their product and service offerings, and to do it quickly. This is either through concessionaires or partnerships with established brands.
Traditional Retailers
Contrary to trends, brick-and-mortar shops are not going to disappear anytime soon. This is especially true for groceries, including fresh produce and canned goods. People still buy from traditional retailers. About 78% of American adults regularly purchase from traditional stores. In comparison, only 5% make more than six online purchases annually. In addition, only about 10% to 15% of US adults buy online at least once a week. This results in online stores achieving less than 2% share of the market for groceries and produce.
Speaking of market shares, it is true that year-on-year growth of supermarket sales is a very low at 2%. Even with online shopping growth of 14%, the growth in sales for stores is still at 2%. This indicates how small the impact of online grocery shopping is.
Traditional markets and stores are alive and well. It is the growth for the different segments that are deceiving. Shares of online groceries sales grew from 1.4% to 1.6%. Depending on how you look at it, either the share grew by 0.2% of the total or a 14% growth in market share. This is equivalent to $1.6 billion in additional sales over the previous year. In comparison, the sales from physical stores grew by $16 billion. The overall growth of 2.2% was historically low for the whole retail industry. Mom-and-pop corner stores and convenience stores, as well as the large warehouse clubs, will be able to maintain their size, as they feel no effect from competition online. Overall, there is still a lot of room for growth for both traditional and e-commerce stores.
Jobs and Sales Growth
The percentage growth of e-commerce sites is also cited as a reason for the loss of jobs in traditional stores. There have been large traditional stores that have laid off personnel or have closed shops. In their stead, there are more online startups trying to fill the void. Even if stores are closing, the total sales figures for the industry is growing because of online stores picking up the slack.
However, even with more online stores operating, there are less people being employed in retail. The differences in managing these businesses explains the difference in numbers. E-commerce companies have increasing sales, but they employ fewer people. The productivity of these smaller companies is greater compared to that from larger brick-and-mortar companies. E-commerce sites sell more goods per employee than comparable traditional stores. They do not need to hire the same number of people as traditional retailers.
Large brick-and-mortar companies are trying to expand their offerings to meet the online competition. These companies have started offering their products online. Those that are not successful in adapting either slow down or are bought by larger competition. Nowadays, the larger competition is probably an e-commerce company looking to expand their market to offline sales. Amazon recently bought Whole Foods and they are set to resuscitate the fortunes of the retailer famous for their healthy and sustainable product line.
Amazon and Retail
Recently, Prime Whole Foods Market introduced discounts to Amazon Prime members, allowing them an additional 10% discount on sale items as well as exclusive offers on other products. The discount has been rolled out to stores in 23 states. Whole Foods has 484 branches, of which about half already implement the discount. Amazon has also expanded free grocery delivery for Whole Foods stores in Baltimore, Boston, Philadelphia, and Richmond, making the two-hour service available to Prime Now subscribers in 14 cities. Prime Now subscribers can avail of free two-hour delivery for orders worth than $35, in some branches in Georgia, Maryland, Massachusetts, Pennsylvania, California, Texas, and Colorado.
Last year, Amazon opened a cashier-less store in Seattle. This is an operating store and laboratory where Amazon members can go in, browse, bag the products they want, and leave the store. The payment is automated with the use of cameras, and AI for the payment system.
The Whole Foods acquisition was Amazon’s way of getting an immediate entry into the retail market. Amazon’s market does not cover a large part of the retail market. For instance, the food and beverage industry is worth more than $1 trillion annually, and yet Amazon has no sales in this segment. With the purchase of Whole Foods, Amazon now has brick-and-mortar presence in important markets. Whole Foods also has a strong following among its customers.
The acquisition has also created a gateway making it easier for non-subscribers to sign up for Amazon Prime. It is a painless way for Amazon to attract more Prime members. Whole Foods is also expanding its reach. It has an additional 38 stores under construction, as well as another 365 smaller format stores under construction.
Impact of E-commerce and future trends
Statistics show that from 2001 to 2016, department stores lost 25% of their jobs, equivalent to 448,000 workers. Warehouse clubs and similar stores increased employment by 80%, equivalent to 841,000 workers. The retail industry had a flat growth but still managed to hire a net 645,000 new jobs. E-commerce, in contrast, had an increase of 334% over the 15-year period, which is equivalent to 178,000 workers. It is noteworthy that 75% of all e-commerce companies only had three to four workers each.
These small startups will continue to have a small number of employees. These people will contribute a larger percentage to their company’s bottom line per capita compared with employees of traditional stores. Not all small e-commerce sites would want to grow to the size of Amazon as they are content to have small boutique operations with high volume sales. At the same time, the expectation is that the trend of more online companies opening will continue, and they will also continue to have only three to four employees.
E-commerce is the future of retailing. However, most startups will be small and would continue to comprise the bulk of e-commerce sites. E-commerce is still in its infancy, and its growth will continue to outpace the rest of retail.
