Amazon (NASDAQ:AMZN) is the largest online retailer in the US and competes with companies like eBay (NASDAQ:EBAY), Wal-Mart (NYSE:WMT) and Best Buy (NYSE:BBY).
The company’s primary merchandise categories are Books, DVDs and Music (Media) as well as Electronics & General Merchandise (EGM). We estimate that online retail sales account for 81% of Amazon’s value with EGM constituting 47%, and Books, DVDs and Music constituting 34% of Amazon’s stock.
Amazon offers ‘Amazon Prime’ and ‘Subscribe & Save’ programs to lock-in customers and make it less likely that they will make a purchase from competing platforms like eBay, Walmart.com and Overstock.com. Furthermore, to better compete with brick-and-mortar retailers like Wal-Mart and Best Buy where shoppers can immediately make a purchase, Amazon has introduced low priced same day shipping for Amazon Prime customers.
We believe that Amazon’s strategy to lock-in customers with services like Amazon Prime and Subscribe & Save will help the retailer gain share in the online retail market.
‘Amazon Prime’ and ‘Subscribe & Save’ Programs Have Benefited its Market Share in the Past
Amazon’s share in US online EGM sales increased from 2.5% in 2006 to 5.5% in 2009 driven in part by initiatives like ‘Amazon Prime’ and ‘Subscribe & Save’ in the past. Amazon Prime is a shipping program where customers pay a fixed annual fee (currently $79) to get free two-day shipping for most products sold.
Amazon, through its Subscribe & Save program offers discount and free shipping to its amazon.com shoppers who regularly purchase the same items. This program has gained momentum lately as more users take advantage of the cost savings.
Free Same Day Shipping Program Will Further Benefit its Market Share
Amazon recently expanded its free shipping program to offer same day delivery for an additional monthly fee of $6 to Amazon Prime customers.
This offering became an immediate success amongst customers. Amazon presently offers this service in Baltimore, Boston, Las Vegas, New York, Philadelphia, Seattle and Washington, D.C and will expand to Chicago, Indianapolis and Phoenix in the near future.
US Online Retail Market Share to Rise to 10% for EGM and 35% for Media
We believe that the company’s expansion of its same day shipping capabilities will help it attract more Amazon Prime customers and that this will in turn have a positive impact on its online retail market share.
We expect Amazon’s share in US online EGM sales to increase to close to 10% by the end of Trefis forecast period.
We estimate Amazon’s share of US online books, DVDs and music sales is around 31% currently, and expect this to reach close to 34% by the end of Trefis forecast period.
You can modify our forecasts above to see how Amazon’s stock would be impacted if its online retail market share in the US were to increase even more than we forecast as a result of initiatives by Amazon.
