Competitors are starting to see progress in cutting Amazon‘s (NASDAQ: AMZN) massive advantage in e-commerce.
Walmart (NYSE: WMT) en Purpose (NYSE: TGT) reported second-quarter blowout results with increasing e-commerce sales. Walmart’s online sales increased 97%, while Target said its digital sales rose 195% in the last three months. Costco (NASDAQ: COST) has not yet reported its earnings results, but posted monthly e-commerce growth of 106%, 86% and 75% respectively in May, June and July. Shopify, which counts hundreds of thousands of small shoppers on its e-commerce platform, said its gross merchandise volume increased 119% in the last quarter.
Amazon, meanwhile, reported sales growth of “just” 48% for its online stores in the second quarter. Looking at its results by region, North America grew by 43%. The services of third-party vendors grew slightly faster at 52%.
With slower growth than its competitors, Amazon should lose a significant market share. But estimates from the U.S. Census Bureau suggest it may not be that bad for the market leader. E-commerce sales in the country grew 44.5% year-on-year last year, according to government estimates. That’s only slightly faster than Amazon’s North American sales growth in the same period and slower than its third-party seller services.
Image Source: Amazon.
Amazon’s keep up the pace with the market
Amazon did a good job of keeping up with the overall market in the second quarter. And that was a quarter where Amazon’s follow-up network was thrown into disarray.
It moved to prioritize fulfillment of items it deemed essential and asked buyers to stop shipping on non-essential inventory to their warehouses because it knew their footprint on essential goods. Meanwhile, operations at their warehouses were delayed after it took measures to prevent the spread of COVID-19. Even Amazon’s valued Prime members saw long delays for some shipments.
Amazon also draws back on advertising and internal promotional tensions that are typically used to boost sales. And it had to delay its prime day shopping day, typically scheduled for July, as it worked to get its warehouses back on track.
Amazon does not report gross merchandise volume, and it does not break out its sales results by country. Therefore, it is impossible to know if it grew faster or slower than the general market based on publicly available data. But it seems that Amazon was growing somewhat slower than the general market in the US
However, when a company carries an almost 40% share, it means a bit slower than the rest of the market that there is a good amount of profit on the market share. Even if Amazon grew about 10% slower than the entire market (say about 40% GMV growth), it would open up about 1.2 percentage points of market share. And for competitors with about 1% of the total market like Target or Costco, this is an enormous opportunity to take part. Even Walmart, with a market share of about 5%, had a lot to gain.
Amazon should be better than other online retailers in the second half of the year
Importantly, investors should consider that Amazon has mostly recovered from the shock of COVID-19. It’s increasing its warehouse capacity, starting to spend on advertising again, and it’s planning for a Prime Day in October. All signs point to continued demand for Amazon shipments and increased revenue growth by the end of the year.
Meanwhile, there are indications that Walmart’s sales may fall back in a notch. The company reported similar store growth of 4% in July compared to 9.3% for the full quarter. Online sales are a major contribution to the sales of similar stores. Management called uncertainty about consumer spending after stimulus checks ran, as well as an abnormal shopping season after school.
While Amazon may have lost a small bit of its dominant share in e-commerce (perhaps), it seems more like a brief flash on its stiff march toward a larger and larger share of online retail.
