Amazonboasts an unpublicized advantage leading to an upward trend in sales transactions.
Since the debut of Amazon (AMZN dropping by 4.60%) three decades ago, there's been a significant shift in consumer shopping habits. Amazon's online marketplace popularized digital retail, making it easy to buy goods online and have them delivered to your doorstep. Originally an online bookstore, Amazon swiftly expanded its offerings, eventually earning the title "Everything Store."
The allure of online shopping, coupled with a recent trend, has made digital retail even more appealing, spurring a mass exodus from brick-and-mortar stores. This shift has benefited Amazon, the undisputed master of online retail, with no signs of a slowdown in sight.
A brief history
The economic climate of the past few years has been marked by skyrocketing prices due to inflation reaching a four-decade high. In reaction, the Federal Reserve Bank raised interest rates to levels not seen in over 20 years. The combined impact of high prices and high interest rates forced consumers to make tough financial decisions at the grocery store and gas pump.
A consequence of these economic pressures has been an increase in retail inventory losses, a result of shoplifting, return fraud, and even employee theft. The magnitude of these losses has escalated to alarming dimensions over the past few years and has become a pressing concern for major retailers worldwide.
Retailers have responded to this issue by securing high-value items, such as vitamins, personal hygiene products, and cosmetics, behind locked cases. While these measures have deterred theft, they also present a hassle for shoppers trying to pick up items quickly, as they require assistance from store staff to unlock the cases. According to a survey by Consumer World, only about a third of shoppers will ask for help. Most customers simply abandon their shopping carts, leaving a gaping opportunity for Amazon to fill.
Seizing the opportunity
During a conference call with analysts in August, Amazon CEO Andy Jassy acknowledged and tapped into this opportunity, with a focus on Amazon Pharmacy. He pointed out the inconvenience of visiting a pharmacy, where high-value items are kept behind locked cabinets and require assistance to unlock.
On the other hand, Jassy noted, "customers love the experience" and "the ease and convenience of buying online drives significant customer appeal."
Multiple retail giants, such as Walmart and Target, have also introduced measures to combat shrinkage by locking up frequently pilfered items. This creates a chance for Amazon to build on its dominance as the world's leading digital retailer.
The undisputed champion
Without a doubt, Amazon is the uncontested e-commerce leader, boasting 38% of U.S. digital retail sales in 2023, outpacing its closest 15 competitors combined, as per eMarketer's analysis. Amazon continues its push to gain more market share from traditional retailers.
Moreover, consumer frustration with locked-up items has reached a breaking point, resulting in sales declines of 15% to 25%, according to anti-theft technology company Indyme. This presents a huge opportunity for Amazon to capitalize on.
In the third quarter, Amazon reported a 11% year-over-year increase in net sales, reaching $159 billion, and earnings per share that escalated 52% to $1.43. It's unclear exactly how much of this surge is attributable to shopper frustration with anti-theft measures, but Amazon's user-friendly online retail platform has long been a popular draw for consumers. It appears that the efforts of physical retailers to combat shrinkage might be inadvertently bolstering Amazon's already formidable lead.
Lastly, Amazon stock, priced at just 3 times forward sales, appears to be undervalued compared to its magnitude of possibilities.
Investors see potential in Amazon's strategy, with its stock price reflecting a discounted value of 3 times its future sales, indicating a significant opportunity for financial gains through investing in the company. Furthermore, analyze the finance sector to discover other businesses that could benefit from reducing physical retail obstacles, like locked cases, to enhance consumer shopping experiences and minimize losses due to shrinkage.
