Online and Amazon to grow more dominant over the next decade

Discussion
Photo: Walmart
Oct 18, 2017
George Anderson

Consumers will continue to make more purchases online while cutting back on in-store purchases over the next decade, according to a report by FTI Consulting, which forecasts total online spending in the U.S. to surpass $1 trillion by 2027.

Online sales, which now account for roughly 12 percent of total retail sales, excluding auto and gas, will grow to 22 percent over the next 10 years, according to the estimates.

“The impact of accelerating online sales growth has been evident in the past two years, with elevated levels of retail bankruptcies and announced store closures amid a non-recessionary environment,” said Christa Hart, a senior managing director in FTI’s retail & consumer products practice, in a statement. “If online sales double by 2023, as we expect, stores will have to contend with the prospect of losing the same amount of sales to the online channel in the next six years as they did in the previous 16. The frustration for many retailers is that even building a complex and expensive omnichannel enterprise has just kept them in the game instead of leading to renewed profitability.”

The biggest beneficiary of the shift from stores to online will be Amazon.com, according to FTI. The e-tailer, which currently accounts for 34.2 percent of online sales, will see its share grow to more than 50 percent of the market by 2027, the firm estimates.

One area where Amazon may find a tougher go moving sales from stores to online is in grocery. FTI puts current market penetration for online at only two percent of grocery’s total and forecasts online growing to somewhere between mid- and high-single digits by 2027.

“U.S. consumers have still not embraced online grocery shopping and appear to prefer to shop for their food in-store,” said Khaled Haram, a senior managing director at FTI. “Tens of billions of dollars in sales migration to online are at stake in this category, so efforts and investment by Amazon, Walmart and others will attempt to break down these barriers to adoption in the next few years. It is increasingly clear that physical stores will play a role in that effort to get more shoppers buying their groceries online.”

DISCUSSION QUESTIONS: Do you expect the pace of online sales growth to remain at high year-over-year levels over the next decade? Do you see specific product categories currently being sold primarily in stores migrating to online by 2027? What categories will be most resistant to the shift?

Braintrust
"With its brand plus its ecosystem, Amazon is poised to take the lion’s share of e-commerce growth not captured by Walmart."
"When you look at the categories that have less than 50 percent e-commerce penetration, you can see where the opportunities are. "
"What these stats also fail to show is how much of these online sales are supported by stores."

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17 Comments on "Online and Amazon to grow more dominant over the next decade"

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Phil Masiello
BrainTrust
E-commerce will continue to grow at its present 15 to 20 percent year-over-year rate. When you look at the categories that have less than 50 percent e-commerce penetration, you can see where the opportunities are. Although fashion, travel, books and music are all well-established e-commerce categories with over 50 percent penetration; home decor, furniture, consumer electronics, beauty and personal care, household cleaning and health are all underdeveloped online categories. Food is, by far, one of the most underdeveloped categories and the most difficult. Packaged goods will have an easier time to transition because a branded box or can is the… Read more »
Ben Ball
BrainTrust
You can’t fight statistics — so the pace of online sales growth in the highest penetration categories (hard/dry goods) will slow percentage-wise but still represent the bulk of the dollar growth in online sales. In CPG, the online penetration of HBC is already in the 20s as well, so food is likely to be the highest percentage gainer. Our own estimates show FTI may be a bit conservative in forecasting total food penetration to stay in the single digits. Growth in the non-perishable center store categories will lead the way to what we think will be the 10 percent-plus range… Read more »
Ken Lonyai
BrainTrust
“The biggest beneficiary of the shift from stores to online will be Amazon.com” Excuse me: do I look surprised? “The frustration for many retailers is that even building a complex and expensive omnichannel enterprise has just kept them in the game instead of leading to renewed profitability.” Omnichannel is a given and (listen-up retailers) just a mechanism to enable what you must do to be profitable: meet (exceed really) customers’ wants/needs. The how and why is irrelevant to shoppers who want what they want or will go wherever the least friction to get it exists. Grocery growth? The same was… Read more »
Charles Dimov
BrainTrust

No doubt online sales will continue to grow over the next decade. But given that Millennials like in-store shopping, omnichannel retail will become increasingly important. Today only 29.1 percent of U.S. and 23.5 percent of Canadian retailers have in-store pickup capabilities (OrderDynamics, Oct 2017) — but that is going to change fast. That means as online grows, so will the opportunity for consumers to pick up their products right away, directly from the store while doing errands. So retailers, make sure your retail technology is up-to-date. This is more than just a passing trend.

Chris Petersen, PhD.
BrainTrust
There are two important stats to watch: 1.) the year-over-year growth rate of online sales and 2.) the percentage of online sales going to Amazon. If the year-over-year growth continues at current rates, Amazon will grow ever more dominant. Some current projections have Amazon’s share at 40 percent of current e-commerce. With its brand plus its ecosystem, Amazon is poised to take the lion’s share of e-commerce growth not captured by Walmart. The slowest growth e-commerce category is often projected as food and consumables. But many of these assumptions are based upon current last mile and delivery scenarios. A recent… Read more »
Seth Nagle
BrainTrust

Great point Chris, the only other stat I would add is acquisitions as there are a lot of baby bears running around that could be a catalyst for digital innovation.

Richard J. George, Ph.D.
BrainTrust
There is no reason why this Tsunami will not reach the shores of all brick-and-mortar retailers. As noted in the article, online is a disrupter or a paradigm shift. In such a scenario everyone, including the legacy retailers, go back to zero. As noted the one area of online underdevelopment is in grocery retailing. This will not stay small forever. I envision online capturing a significant portion of what I refer to as replenishment shopping or loading/reloading the pantry. Such a shift does not bode well for the center store of a traditional food retailer. Many of the center store… Read more »
Doug Garnett
BrainTrust

I’m always cautious about these kinds of predictions. Business history shows that they are always wrong — what’s not known is exactly how they will be wrong.

More concerning is the suggestions that Amazon will account for half of online sales. This wouldn’t be surprising — the internet tends toward monopoly because of the incredibly high cost to establish and maintain advantage.

This follows the online advertising trend: Google and Facebook account for 80 percent of advertising dollars online. And there’s the new Scott Galloway book about the four (Google, Apple, Facebook and Amazon) that dominate the web.

Neil Saunders
BrainTrust
I don’t doubt that online penetration will increase, however, I am far more skeptical of the Amazon prediction. It’s perfectly possible that Amazon will have half the market, but given it is impossible to predict competitive dynamics so far ahead it is also quite possible that it won’t! Indeed, there are already quite a number of retailers seeing faster online growth than Amazon in the U.S. What these stats also fail to show is how much of these online sales are supported by stores — browsing in stores first, picking up from stores, returning items to stores, etc. That’s not… Read more »
Sterling Hawkins
BrainTrust

I think it’s time we start to look at businesses more holistically than simply by channel. Yes, online sales will continue to grow. Yes, there’s an impact of that in-store. And how those channels can work together to drive value for the consumer is much more powerful than a single channel alone. As an industry, we’ve spent the better part of a century finding the exact right places to put stores to be around the people that buy stuff. This is really about how we can use those stores, integrated with online technologies, to better serve the customer.

Harley Feldman
BrainTrust

Online sales will continue to grow as consumers get more comfortable with the process. With time at a premium in today’s busy society, online sales will grow to help ease the time pressure.

Groceries will be a lagging category in online sales. Many people, me included, like to see and feel produce before purchasing. The same is true for breads, milk and other perishable products. While non-perishables might be more readily purchased online the challenge of buying perishables online will slow the grow of online non-perishables as they are most times purchased in the same basket.

Seth Nagle
BrainTrust
As baby boomers begin to retire/shop from home and Gen Z starts to have more buying power, I see online sales growing. But I have noticed recently some issues with online ordering, such as ordering 2 or 3-day shipping but the product isn’t prepared for 3 or 4 days, making the entire process take over a week. Other issues I have seen are poor product descriptions or misleading marketing and having to return an item. If these issues continue to grow along with the demand, I could see online sales slow until they get worked out. Regarding product migration, I’ve… Read more »
Ralph Jacobson
BrainTrust

Food may indeed be the final frontier for online shopping. Online grocery shopping has been around for almost 30 years now, with Peapod starting the effort. I know this category is gaining online interest, however, people take food very personally, as they should. Perhaps when we have taste and smell-sensory technologies available online, then the breakthrough may finally happen.

Ricardo Belmar
BrainTrust
The problem with studies such as this one cited in the article is that they assume current business models will remain unchanged and represent a complete lack of innovation. They assume that the current disruptors will be the only disruptors going forward which is a contradiction to the concept of disruption! While it makes for a great prediction, the industry isn’t quite that black and white. It’s no longer a digital vs physical world — channels simply aren’t as important as they used to be in terms of metrics and predicting the future. For example, this doesn’t take into account… Read more »
Shep Hyken
BrainTrust

Yes, online will continue to grow and evolve as companies like Amazon find new ways to deliver value and convenience to the customer. Almost everything will be available online with some type of delivery or pickup option. But what about traditional brick-and-mortar? Well, it’s not dead. Even Amazon knows this as they start to move into physical locations.

Norman Foster
Guest
1 month 23 days ago

Does eBay get the kind of friendly treatment that Amazon gets? If not what’s the reason? After today’s earnings results eBay is down 5%.

Mark Nicholson
Guest
Unless you’re Walmart, you can’t compete on price. A study by Gartner states that 89% of marketers expect customer experience to be their primary differentiator. People seem to shop online for 2 reasons that are difficult to compete with — price and convenience. But if retailers prioritize the customer experience, they can create something that online can’t replicate, and competitors would have a tough time to duplicate. To mitigate online sales growth, offline sales need to embrace the offline experience. Practically everything can be bought online, and experienced at an acceptable level. including buying a new car. It seems one… Read more »
wpDiscuz
Braintrust
"With its brand plus its ecosystem, Amazon is poised to take the lion’s share of e-commerce growth not captured by Walmart."
"When you look at the categories that have less than 50 percent e-commerce penetration, you can see where the opportunities are. "
"What these stats also fail to show is how much of these online sales are supported by stores."

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