According to a London-based research boutique, Research Farm’s latest report,“An Insider View: Amazon.com,” the online retail giant, Amazon’s outstanding sales growth will lead to Amazon overtaking the world’s second biggest retailer Carrefour in sales within the next ten years.
The report states that with the company on track to generating more than USD 40bn in sales in 2011 and currently achieving a 50 percent growth rate, Amazon.com could reach Carrefour’s
2010 sales (incl VAT) (USD 139.2bn) within the next ten year period and challenge the world’s current second biggest retailer for its position.
This forecast allows for the exceptional growth rate to slow down, but rests on the assumption that recent investments, including the soon to be launched tablet, the growth of its cloud services division, and the scaling of benefits from its latest state of the art distribution centres will pay off.
While most other physical retailers are struggling against the tough economic background to reach sales growth in the single digits (Carrefour’s 2011 H1 growth was 2.7 percent), Amazon’s latest quarterly figures show that sales increased by a remarkable 50 percent from an already high base. Daniel Lucht, Research Director at ResearchFarm, comments: “Amazon can grow much faster than most bricks and mortar players, because the pureplay does not have to invest into a costly store estate in foreign markets and the widening of marketplace allows for (virtually) stocking inventory without upfront investment.”
The research highlightsthat for online players it is relatively cheap to internationalise operations as websites are already global. Once a certain online sales threshold has been reached in a country, retailers can follow through with national websites, tailoring the proposition according to demand and price position and even – if desired – open flagship stores, where demand is strongest. In contrast to bricks and mortar retailers pursuing future growth, Amazon does not need a store estate, pay for rents, rates and upkeep, hire sales personnel and fill new stores with both fast and slow turning inventory to offer a fully stocked store environment to customers, but can instead exploit its nimble supply chain and utilize its just in time business model to the full – in fact Amazon’s cashflow model is much sharper than that of traditional retailers’ as the inventory cycle is kept radically short.
Moreover, Amazon has immense untapped potential to offer brands and SKUs not currently available on the website, and to leverage the long tail of Internet retailing. Crucially the retailer can drive its marketplace operation – which allows third party sellers to sell to Amazon’s customers – to reach its full potential and offer the widest and deepest ranges without upfront capital expenditure.
Furthermore, Amazon ranks highly on convenience in customer surveys in any country the retailer has a presence and its customer centric nature is perhaps best demonstrated by its highly efficient loyalty tools such as Prime (the free delivery service) and the creation of its own ecosystem around the Kindle and digital downloads. After having erected considerable competitive barriers, in
terms of its logistics operations, distribution centres and IT infrastructure, Amazon has now started trialing click & collect solutions in the US and the UK that could add yet another growth boost.
Whilst this forecast depends on many different factors – not least currency exchange rates and inflation expectations not to mention the fact that the future of Carrefour as an entity in its current shape is not entirely secure (Dia spin off) – it also reflects a certain weakness on part of the French hypermarket operator.