It is inevitable that Amazon (NASDAQ: AMZN) will exceed Walmart (NYSE: WMT) in total merchandise sales in the United States at any given time. The sales volume of one increases by more than 20% every year, the other does not exceed 10%.
But few analysts expected Amazon to overtake the retail giant so quickly. An April report from e-commerce data firm Edge by Ascential said Amazon won’t overtake Walmart until 2025. But JP Morgan analyst Doug Anmuth believes Amazon will overtake Walmart in US sales. -United next year. And his assumptions are quite reasonable.
Where we are today
Americans have spent nearly $ 818 billion at online retailers in the past 12 months, according to the US Census Bureau.
Amazon has a market share of around 40% of all online sales in the United States, putting its gross merchandise volume over the past 12 months at around $ 327 billion. And don’t forget that Amazon has a “small” physical retail operation that has generated over $ 15 billion in revenue over the past four quarters. That puts its total retail volume at around $ 340 billion.
Walmart US and Sam’s Club generated combined revenue of $ 439 billion in the past four quarters. While Walmart also operates a third-party merchant market – of which Walmart only accounts for a percentage of sales as revenue – it accounts for a relatively small share of sales. It also includes gasoline sales in its revenue, which should not be considered retail sales.
So, as it is, Amazon is still around $ 100 billion behind Walmart. That’s a big gap to close in just seven quarters. But Anmuth believes Amazon’s gross merchandise volume excluding physical stores will hit $ 377 billion this year and hit $ 457 billion in 2022.
Can Amazon Increase US Sales Volume By About 20%? Absolutely
The growth of e-commerce in the United States has remained resilient, even as more people get vaccinated and become more comfortable with in-store purchases again. People started using Amazon.com and other online marketplaces for more items in 2020, and these buying habits persist. Despite this, e-commerce has accounted for less than 15% of all retail businesses in the past year.
There is plenty of room for e-commerce to take a share of total retail sales, which should lead to sustainable double-digit growth. Amazon has historically increased its share of e-commerce sales over time, despite increasing competition. This is largely thanks to the network effect of its Prime membership and Fulfilled by Amazon programs.
As such, a growing share of Amazon’s online sales come from third-party merchants using its warehouses and logistics networks to provide prompt delivery to Prime customers. As a result, Amazon’s gross merchandise volume is expected to be able to maintain faster growth rates than total online sales.
For Amazon to meet Anmuth’s estimates, it only needs to increase gross merchandise volume by about 20% per year this year and next. It’s totally reasonable for Amazon.
Biggest retailer puts big target on Amazon’s back
Surpassing Walmart as the nation’s largest retailer is a milestone for Amazon and its investors. It shows the strength of Amazon’s core business and the advantages it holds in e-commerce.
That said, that puts an even bigger target on Amazon, which has faced increasing pressure from regulators over the years. Amazon has often defended itself by pointing out that it only accounts for a small portion of all retail sales. With Lina Khan, a big opponent of Amazon, who now chairs the Federal Trade Commission, and Amazon’s growing dominance over US retail, the pressure will continue to mount. Regulatory changes pose a growing risk to Amazon shareholders.
The story of Amazon’s growth – not just in retail, but also in cloud computing and advertising – remains too compelling for the stock to be too risky. Still, this is something investors should be aware of when reviewing Amazon stocks.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.