Please ensure Javascript is enabled for purposes of website accessibility

Amazon's Market-Share Decline Is Nothing to Worry About

By Adam Levy – Jun 3, 2020 at 10:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The online retailer's sales didn't grow nearly as much as competitors' online sales last quarter.

Online commerce is surging amid the coronavirus pandemic. With shoppers avoiding stores, ordering items for delivery or curbside pickup has become many consumers' preferred way of buying everything they need.

Online sales at Walmart (WMT -2.50%), Target (TGT -0.23%), and Best Buy (BBY 0.31%) exploded higher in the first quarter. Digital sales more than doubled for both Target and Best Buy; Walmart's online sales grew 74%, led by its efforts in grocery.

But (AMZN -3.01%) reported just 24% growth in its online stores. And while its quarter ends in March (versus April for the other retailers mentioned), management expects a similar growth rate for the second quarter. 

That slower growth means it's losing market share to big-box competitors. Before COVID-19, Amazon's share of online spending was 42%, according to Rakuten Intelligence. That fell to 34% in mid-April.

Consumers are trying out same-day fulfillment options at Amazon's competitors while the e-commerce giant experiences shipping delays. With indications it could still be a while before Amazon's one-day shipping for Prime members gets back to normal, investors may be worried big-box retailers are cutting into Amazon's sales growth with the promise of faster fulfillment.

An open amazon box.

Image source: Amazon.

Where's all this online spending coming from?

While the online sales growth numbers are impressive for Walmart, Target, and Best Buy, it's important to examine the overall results of their businesses and the retail industry at large.

Walmart and Target both performed exceptionally well overall in the first quarter. Revenue growth accelerated at both big-box stores. While e-commerce was a large contributor to that revenue growth, both companies saw increases in comparable store sales for in-store shoppers. In other words, Walmart and Target didn't see the huge growth in online sales result in a significant decline in its in-store shopping.

But Walmart and Target's in-store performance is at odds with the results of practically every other company in the industry. Best Buy, for example, saw its total revenue decline 6.7%. Management estimates it was only able to retain 81% of its total sales during the six weeks it shifted to online orders only. Overall retail declined 16.4% in April versus March (but that includes bars and restaurants, which fell 29.5%). Sales were down 8.7% in March.

That's to say, most retailers saw a considerable decline in overall sales, especially in-store sales. And as consumers shift their spending from in-store to online, most of that spend will naturally end up at the online outlets of the retailers whose stores consumers would've visited in person. There's potential for that to change over time, as comparison shopping online is easier than going from store to store.

Meanwhile, the overall growth of Amazon -- 29% in North America during the first quarter -- was not only faster than most of its competitors' overall growth, but an acceleration from Amazon's fourth quarter. That indicates that Amazon is picking up share of the overall retail landscape and that the shift to e-commerce has benefited the company. 

Prime is the prime concern

One of the best indicators of Amazon's long-term potential for success is how customers are responding to its Prime membership offering. And while online shopping at Walmart, Target, and other retailers offering fast, often same-day, fulfillment ticked up over the last few months, Amazon Prime membership continues to climb.

Sales of Amazon Prime memberships increased 10% in mid-March, according to data from Second Measure. And data from Consumer Intelligence Research Partners shows Amazon converted free-trial members into paid members at its highest rate in two years during the first quarter.

CFO Brian Olsavsky says Amazon Prime members are getting more value out of the program amid the pandemic than ever, despite the shipping delays Amazon's experienced. They're shopping more often, ordering more, and using their digital benefits, such as Prime Instant Video. Indeed, Prime Video has been the second most popular streaming video service in the U.S. over the last couple months, trailing only Netflix.

Prime looks just as healthy as ever, and the current environment may have even pulled forward new memberships for Amazon. That bodes well for the company's long-term prospects of winning market share from the overall retail industry, even if its share of online sales is slipping right now.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Netflix and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, Inc. Stock Quote, Inc.
$113.78 (-3.01%) $-3.53
Walmart Stock Quote
$130.06 (-2.50%) $-3.33
Target Corporation Stock Quote
Target Corporation
$152.61 (-0.23%) $0.35
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
$68.78 (0.31%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.