Growth in holiday retailing comes from online – Amazon a primary beneficiary

The WSJ reported recently that offline retail sales are flat this holiday season compared to 2008 while online retailing is up.  This is further confirmation that retail sales are shifting online and we believe that online retailers like Amazon are well positioned to benefit so long as they can maintain share within the growing online market.

Within the US, we estimate that about 18% of the market for books, DVDs and music is online and that this will continue to trend upward over the Trefis forecast period.

We believe there are three key trends driving increased online retailing:

1.  Traditional Retailers Competing Online – traditional brick-and-mortar retailers like Wal-Mart, Best Buy and Target are increasingly emphasizing online sales

2.  Shift in Buyer Demographic – there is growing purchasing power amongst shoppers accustomed to using the internet for most tasks.  For example, many college grads within the last 5 years have grown up with the internet and are spending more online as their purchasing power increases.

3.  Rising Internet Broadband Penetration – the number of US households that have access to broadband internet has increased and still has room to grow.  There are about 80 million US broadband internet households compared to nearly 117 million US households.

How much upside would there be to the $113 Trefis price for Amazon if the online market for books, DVDs and music represented 50% of the total retail market and equal to offline?

A.  7% (~$8)

B.  13% (~$15)

C.  18% (~$20)

D.  23% (~$26)