(AMZN 0.83%) has been one of the most phenomenal growth stories in business history. The "everything store" opened for business just 25 years ago but is on pace to become the largest company in the world by revenue within a few years.

The pandemic has helped accelerate Amazon's growth in 2020. Analysts estimate that full-year revenue will jump 35% to $380 billion as consumers flock to e-commerce. For comparison, sales grew 20% year over year in 2019.

However, Amazon's growth is likely to moderate considerably over the next few years. Let's see what that means for investors.

The exterior of an Amazon fulfillment center

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It's all about the U.S.

One notable thing about Amazon's growth is that it's heavily U.S.-focused. Years ago, management talked about sales in international markets eventually overtaking Amazon's domestic sales. In fact, the opposite has occurred.

In 2009, Amazon's international segment accounted for 48% of its revenue, with the other 52% coming in North America. By contrast, in 2019, the North America segment generated 61% of Amazon's revenue, compared to 27% for the international segment. (The Amazon Web Services cloud-computing business accounted for the remaining 12%.) Including AWS, Amazon generated 69% of its revenue in the U.S. last year.

Of course, it's possible that these trends will reverse. However, Amazon has been growing faster in North America -- and especially the U.S. -- than overseas for years and years on end. This doesn't seem like a fluke. Rather, Amazon appears to have a notably stronger market position in its home market than it does abroad.

Market saturation could come surprisingly soon

Amazon's heavy reliance on the U.S. is significant because the retailer is quickly saturating its home market. Even the most conservative third-party estimates put Amazon's share of the U.S. e-commerce market at nearly 40%. With U.S. e-commerce sales on track to reach approximately $800 billion in 2020, Amazon's domestic gross merchandise volume will probably surpass $300 billion this year.

Many Amazon bulls take solace in the fact that e-commerce represented just 14% of U.S. retail sales last quarter. Even if Amazon can't gain much more market share within it, e-commerce will continue to gain share within the broader economy. Yet the ceiling on e-commerce as a percentage of retail sales is well below 100%, and it could be difficult for Amazon to replicate its past success in many of the merchandise categories that are shifting more slowly toward e-commerce.

Merchandise Category

2019 U.S. Sales

Auto dealers

$1.06 trillion

Grocery stores

$683 billion

Gas stations

$501 billion

Building materials and supplies dealers

$337 billion

Pharmacies and drug stores

$297 billion

Nonstore retailers

$796 billion

Everything else

$1.78 trillion

Data source: U.S. Census Bureau Retail Trade and Food Services Report. Table by author.

Of the nearly $5.5 trillion in U.S. retail sales last year, more than half went to auto dealers, gas stations, home-improvement stores, supermarkets, and drugstores. It would be nearly impossible for Amazon to get a major foothold in auto sales, gasoline, or home improvement. The grocery and pharmacy markets have more potential. Sure enough, Amazon is putting increased emphasis on grocery delivery this year, testing a new brick-and-mortar grocery concept and rolling out Amazon Pharmacy, which offers free two-day prescription delivery for Prime members.

Yet many investors seem to think about Amazon's experiments in the grocery and pharmacy markets as providing "nice-to-have" optionality for future growth. Given that brick-and-mortar retailers outside of the five categories listed above generated just $1.8 trillion of sales in 2019 -- a figure that's set to fall in 2020 -- those tests seem like "must-win" situations for Amazon if it's to maintain a high growth rate.

The exterior of a Whole Foods Market grocery store

Image source: Whole Foods Market.

Clash of the titans

To look at Amazon's big challenge another way, the company has already decimated most of the country's weakest retailers, gaining tons of market share along the way. Additional share gains will be harder to come by, as so much share will be concentrated in a handful of retail giants.

For example, Walmart generated $400 billion of sales in the U.S. last year. Through the first three quarters of its 2021 fiscal year, it's added more than $25 billion to its top line domestically. Meanwhile, Costco generated $122 billion of revenue in the U.S. in its recently ended fiscal 2020, while Target is on track to surpass $90 billion of revenue this year.

Indeed, combined gross merchandise volume for the top 10 U.S. retailers (including Amazon) will probably exceed $1.5 trillion this year. By contrast, department stores, including discounters, generated just $135 billion of sales in 2019 -- and that figure is on pace to fall by double digits in 2020. Simply put, there isn't that much market share left to gain from declining retailers.

Adding it all up

To be clear, Amazon hasn't completely exhausted its growth opportunities. U.S. retail sales will continue rising, Amazon could gain additional market share in its most successful categories and may succeed in becoming a bigger force in the grocery and pharmacy markets.

Nevertheless, I expect Amazon's sales growth to moderate to closer to 10% than 20% within a few years as it runs out of "easy" market-share opportunities. Growth could fall into single-digit territory within less than a decade. (Notably, AWS is unlikely to offer a way out of this growth slowdown. AWS is also saturating its market, causing its growth rate to moderate to 30% this year from 70% just five years ago.)

Amazon is a great company. But its $1.6 trillion market cap is built on an expectation that it will continue to grow rapidly for many more years. If growth slows markedly over the next few years -- as I expect -- Amazon stock is likely to underperform the market.