One of Amazon's fulfillment centers that help it ship millions of packages every day. Image source: Amazon.
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About one in every three online product searches begins at Amazon.com . It's a surprise the retail giant hasn't turned into a verb similar to Google -- "Amazon it." It's no surprise then, that its gross merchandise sales are expected to climb about 25% this year.
But putting those numbers in the context of the larger retail landscape really sheds some light on the absolute dominance of Amazon in retail in 2015. Macquarie Research analysts point out that Amazon accounted for $0.51 of every $1 of growth in U.S. e-commerce during 2015. Moreover, it grabbed 24% of total retail growth in the United States.
Competing for scrapsAmazon's retail dominance leaves its competitors, such asWalmart and Target , competing for scraps in order to grow sales. That's why Walmart is expected to see a slight decline in sales for 2015, while Target grows revenue in the low single digits.
Meanwhile, both big-box retailers are working to improve their online presence. Walmart has invested billions over the last few years to compete with Amazon. Only in the last three years or so did Walmart get around to setting up modern fulfillment centers around the U.S. and overhauling basic infrastructure technology necessary for a high-traffic e-commerce site. Walmart plans to spend between $1.2 billion and $1.5 billion in 2016 compared to $1 billion in 2015. Despite its efforts, e-commerce growth slowed to just 10% last quarter, accounting for only 0.15% of Walmart's total sales growth.
Target's e-commerce growth has been equally disappointing for investors. Last quarter, the company grew online sales just 20% in the third quarter. Earlier in the year, Target CEO Brian Cornell told investors he expects e-commerce sales to grow 40% for the year as it invests about $1 billion in its online sales infrastructure.
Amazon continues to grow its online sales at a much faster rate than both Walmart and Target despite a significantly larger sales base. During the third quarter, Amazon grew sales 23%, and Macquarie expects 2015 sales volume to increase 25% overall on a 2014 base of $66 billion. Walmart and Target's e-commerce sales over the trailing 12 months were just $13 billion and $2.5 billion, respectively.
How is Amazon doing this?There's little doubt the biggest driving force behind Amazon's continued retail growth is the success of Prime. Prime includes unlimited two-day shipping, video, and music streaming, unlimited photo storage, and a handful of other perks for just $99 per year. Prime makes customers loyal to Amazon, so as Prime grows its subscribers, Amazon sees a corresponding jump in sales.
RBC capital found that 73% of Prime subscribers shop on Amazon twice or more per month, compared to 22% of non-subscribers. And 74% of Prime subscribers say they shop more on Amazon now than when they first joined Prime.
Prime membership is growing strong. Amazon reported Prime subscribers grew 50% in the United States during 2014, barely lagging global growth of 53%. Investors could get another peak at Prime growth when Amazon reports its fourth-quarter results in January. Amazon said it added 3 million Prime subscribers during the third week of December, along with several other vague statistics it released the Monday after Christmas indicating Prime's growth isn't slowing.
Macquarie Research analysts believe 50% of all U.S. households will subscribe to Prime in 2020, up from about 25% presently. That means Amazon will continue to dominate brick-and-mortar retailers as they attempt to grow their online sales. With e-commerce accounting for about half of the industry's growth in 2015 (and expected to count for an even larger percentage in the future), stalwart retailers will have a harder time growing sales as Amazon continues to boost its share of online commerce.
The article Amazon Is Dominating the Entire Retail Industry originally appeared on Fool.com.
Adam Levy owns shares of Amazon.com. 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.
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