SAN FRANCISCO – Amazon's data-savvy e-commerce model has already upturned the retail market. But it may have a far bigger reach in retail than commonly understood — signaling more threats to mass market retailers.
Amazon's yearly sales account for about 15% of total U.S. consumer online sales, according to the company's statements and the Department of Commerce.
But the Seattle e-commerce company may actually be handling double that amount — 20% to 30% of all U.S. retail goods sold online — thanks to the volume of sales it transacts for third parties on its website and app. Only a portion of those sales add to its revenue.
“The punchline is that Amazon’s twice as big as people give them credit for, because there’s this iceberg under the surface, but you only see the tip,” said Scot Wingo, executive chairman of Channel Advisor, an e-commerce software company that works with thousands of online sellers.
When third-party sales are taken into account, Amazon's share of what U.S. shoppers spend online could be as high as $125 billion yearly, and it could represent close to 30% of the online goods Americans buy, according to an analysis of Amazon's financial statements.
Gene Munster, a senior analyst at Piper Jaffray, estimates Amazon touches 30% of total e-commerce in the United States, and its share is growing.
“Amazon’s just going to slowly grab more and more of your wallet,” he said.
Given its growth, it's possible to contemplate a future with Amazon as the nation’s largest single retailer, though what that looks like is unclear. Walmart was massively disruptive when it came on the scene, laying waste to local retail districts with each megastore it opened.
Amazon, which increasingly can offer delivery in one to two hours, promises to be even more disruptive, said Jason Goldberg, senior vice president of commerce at Razorfish, an e-commerce marketing agency.
“The more power Amazon gets, the tougher it makes it for those independent retailers,” he said.
Amazon by the numbers
Estimates of Amazon's true reach in online sales start with its domestic revenue — $63.7 billion in 2015 retail sales in the United States and Canada, with Canada making up a relatively small portion of its sales.
In the United States, total annual retail sales are about $5 trillion, with the Department of Commerce estimating 8% of that is e-commerce. That puts total online sales at around $400 billion, and Amazon’s share at 15%.
Amazon's retail revenue, however, doesn't reflect the full value of the items sold on Amazon by other retailers. These are companies that use Amazon as an online sales venue, sometimes their only one. Amazon says 49% of its units sold come from third-party sellers.
As an example, think of televisions. Search “32 inch TV” on Amazon, then click “32” and under.” A total of 457 possible matches come up. But only 45 of them are actually sold by Amazon. The rest come from companies like A-Meado Enterprices LLC, with 55, ByBuy with 54 and IPC-Store with 33.
These are separate companies that use Amazon as a sales platform. Some have their own warehouses and only take orders on Amazon, some hire Amazon to take care of the entire process, a service called Fulfillment by Amazon.
“Amazon is basically the fronting website for a lot of retailers out there,” said Charles O’Shea, a senior analyst with Moody’s Investors Service.
To the average consumer, there's not much difference between something they buy on the Amazon site that comes from Amazon versus something that someone else is selling there, said John Haber, CEO of Spend Management, a supply chain consulting firm in Atlanta that works with many online retailers.
“The stuff comes in an Amazon branded box,” Haber said.
But to Wall Street, they're different, which is how the measure of how big Amazon looms in the average buyer’s world could be significantly underestimated.
Wait, how big?
Amazon doesn't release is it gross merchandize volume, or GMV, a measurement of total sales dollar value for merchandise sold through the site. Instead it talks about the ways its sellers are creating jobs and investing in their local communities.
"In 2015, more than 70,000 entrepreneurs achieved over $100,000 in sales selling on Amazon," said Erik Fairleigh, an Amazon spokesman.
Without GMV, estimates of how much of the U.S. online retail market Amazon touches comes from its annual sales, made up of what Amazon made selling its own goods plus how much Amazon made selling other people’s goods, the third party vendors.
Their number has been growing. The commissions those vendors pay Amazon can vary between 5% to 30% but many experts give 10% as a reasonable average guess.
If just 10% of that value appears in Amazon’s revenue stream, the rest would not. That remainder, 90% of everything Amazon sells, represents the value of the third-party goods sold.
“For a $100 lamp, Amazon gets $10 and the seller who used Amazon gets $90. But it’s still $100 going through Amazon as the sales point,” said Razorfish's Goldberg.
Josh Olson, an analyst with Edward Jones, estimates Amazon's involvement in all U.S. online sales at 31.3%. “If you look at what they’re actually touching in terms of merchandize. It’s really significant,” he said.
Using e-commerce sales data ChannelAdvisor collects to inform his estimate, Wingo goes as high as 36%.
"When you 'unpack' the $63.7 billion revenue, that has transactional value (what Wall St. calls Gross Merchandise Value) of $135 billion ($56 billion direct from Amazon and $79 billion from third party sellers) which is 36% of overall commerce," he said.
All these estimates involve some guesswork. Moody's O’Shea thinks Amazon is bigger than its financials make it appear but doesn’t think it’s possible to accurately gauge exactly how much bigger.
“I don’t think there’s reliable data out there,” he said,
Spend Management's Haber thinks 25% could be a tad low, but without Amazon releasing specific GMV figures, “we can’t really tell. Without the numbers you cannot truly ascertain their exact share of consumers’ wallets,” he said.
More retail waves
Just as Big Box stories killed off mom-and-pop operations, Amazon could kill off Big Boxes, some speculate.
“Think of Office Max and Staples. Those stores all thrived because they had a bigger assortment than the customer was used to. But today they can buy 300 kinds of stapler on Amazon. So those big boxes that used to win on assortment can’t win on assortment anymore,” Razerfish's Goldberg said.
Piper Jaffray estimates 44% of the U.S. population now lives within 20 miles of an Amazon fulfillment center.
This online dominance could in turn mean the end of malls, which are increasingly dependent on having big box stores as anchors. And as the Amazon effect becomes more prevalent, the same thing could hit strip malls, gradually working its way down to ever smaller stores.
The potential effect on the American retail landscape, Goldberg said, could be “remarkable.”