A report by research company FTI Consulting has cast a strong light onto the US online sales market which is expected to grow significantly over the next few years. Compound annual growth of 12% is expected through to 2020 after which it will be a more modest 9% over the following decade. However, there seems to be a massive change in consumer spending habits occurring not only in the US but around the world.
Hitting the $1 trillion goal
US online sales for 2017 are expected to come in at around $445 billion and reach $1 trillion by 2027. This is a phenomenal change in consumer spending habits and one which will change the face of the US retail sector. We have already seen massive changes with the likes of Amazon taking the lead but with sales expected to increase spectacularly in years to come we can only guess what will happen to physical retail outlets.
Amazon set to take the lion’s share
It is ironic that companies such as Amazon were ridiculed and mocked by analysts when they came to the market but look at them today. Online retail sales for 2016 show that Amazon had a 34% share of this market although this is expected to increase to 53% by 2027. This would equate to online sale of more than $500 billion a year!
We know that Amazon is extremely efficient, ruthless with suppliers but when you bear in mind the potential retail sales turnover in the future, every percentage point margin improvement will drop straight through to the bottom line. It is also inevitable that online shopping procedures will be more efficient in the future, virtual reality will come into play and it will be easier for online retailers to take your money.
Can anybody stop Amazon?
We recently covered news of a Google project to utilise voice recognition in the home to order products online. Even though Google has welcomed a number of high-profile US retailers on board it is a major challenge to catch up with Amazon let alone overtake the company. It is likely that Google will at least slow Amazon’s market share growth in the short to medium term but the company is so efficient in online sales that it is difficult to pick any holes in the business model.
In some ways this is a similar story to Google in its early days, the company was ruthless, highly efficient and became “the name” in search engine services. Even though competitors have been gnawing away at Google’s dominance, in reality they have not made a significant dent in the company’s long-term prospects. So, while many will suggest that the online market is cutthroat and very competitive, everybody needs to make a profit and there are no companies better at that than Amazon.
Regulatory issues
If Amazon’s share of online sales in the US does increase from 34% in 2016 to a staggering 53% in 2027 this might grab the attention of the regulators. Such a dominant market share does open the company up to potential abuse of its power but why would Amazon do this and put itself in the firing line?