Inside Amazon's Plans to Dominate Online Retail

By Markets Fool.com

Few dispute that online retail figures to play an increasingly prominent role in the way people around the world shop. However, this generational shift rarely manifests itself in such stark terms as it has so far this month.

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Case in point: Apparel retail giant Macy's plummeted 15% in a single week this month on the back of weaker-than-expected Q1 earnings, a particularly surprising move given its stock's usual lack of volatility.

M data by YCharts.

Worse yet for Macy's and its shareholders, a number of sell-side research analysts penned reports predicting a changing of the guard of sorts among U.S. retail leaders.

Down goes Macy's

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According to a recent investor note by Cowen & Co.analyst John Blackledge, Macy's is likely to lose its title as the No. 1 apparel retailer by 2017 to none other than e-commerce titan Amazon.com .

For those following the space, this news shouldn't necessarily come as a huge surprise. Though it has made progress in other areas, including business-to-business and private-label items, Amazon has made a concerted push to increase its apparel sales in recent years.

The company has created seven private fashion labelsaimed at pushing its business into a higher-margin segment of the retail universe. The company has created its first-ever live show, Style Code Live, ostensibly as a way to promote the kind of fashion-forward items it clearly views as a strategic priority.

Additionally, a recent note from Morgan Stanley's sell-side team makes the case that Amazon will expand its share of the overall U.S. retail market to 20% by the year 2020. The bank estimates that Amazon already owns as much as 34% of the U.S. online apparel market. Efforts to expand its selection and Amazon's highly competitive pricing and fulfillment strategies should serve as the primary drivers of this trend.

Cowen & Co.'s Blackledge also noted a monthly U.S. survey Cowen conducts in which respondents have shopped at Amazon in ever-greater numbers over the last three years, while the number shopping at Macy's has remained flat over the same period. Worse yet for brick-and-mortar retailers like Macy's, this trend will likely continue in coming years.

To the victor go the spoils

In a broader sense, this speaks to why I regularly argue that Amazon is poised to thrive so spectacularly in the years to come. As consumers increasingly embrace the sheer convenience of shopping online, the companies that can offer the best mix of selection, pricing, and convenience figure to thrive in this environment. Amazon excels at each of these factors.

Since it first started selling retail goods in 2002, Amazon has worked tirelessly to expand its apparel offerings. Research firm R.W. Baird & Co.estimated last year that apparel now accounts for 6% of all stock-keeping units (SKUs) available on Amazon.

Most importantly in my eyes, Amazon's distribution advantages should become an increasingly important competitive advantage. Thanks to its aggressive investment in its distribution and fulfillment capability in recent years, Amazon is one of the few companies that can reliably ship massive amounts of goods to consumers' doorsteps in a few days' time. What is more, Amazon's interest in developing a global logistics and transportation business would even further expand that competitive advantage in convenient delivery.

As the thinking goes, with more selection from nearly all retailers coming online, customers will likely gravitate to the channel that can get a given item to them in the quickest, most convenient way possible. Through efforts like Prime two-day shipping and even one-hour or two-hour delivery via Prime Now, Amazon can eat the lunch of retailers like Macy's in this increasingly important facet of online retail.

Amazon's coming ascent to the top spot in retail certainly isn't an accident. Rather, it's just the latest example of how the company figures to dominate the future of e-commerce.

The article Inside Amazon's Plans to Dominate Online Retail originally appeared on Fool.com.

Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.