Amazon is poised to overtake the world’s second biggest retailer, Carrefour, in sales within the next 10 years, according to a new report from boutique research firm ResearchFarm.
Its study, An Insider View: Amazon.com finds, reports Amazon is on track to generate more than US$40bn in sales in 2011 and, with current 50% growth rates, could reach Carrefour’s 2010 sales of €101.0bn (incl VAT) (US $139.2bn) within the next 10 years.
This forecast allows for the exceptional growth rate to slow down, but rests on the assumption recent investments, including the soon-to-be-launched tablet, the growth of its cloud services division, and the scaling of benefits from its new distribution centres will pay off.
While most other retailers are struggling against the tough economic background to reach sales growth in the single digits (Carrefour’s 2011 H1 growth was 2.7%), Amazon’s latest quarterly figures show sales increased by a remarkable 50% from an already high base.
Daniel Lucht, research director at ResearchFarm, said: “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.”
For online players it is relatively cheap to internationalise operations as websites are already global, ResearchFarm says. 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 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 utilise its just-in-time business model to the full. In fact, Amazon’s cashflow model is much sharper than traditional retailers’ as the inventory cycle is kept radically short, ResearchFarm claims.
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, ResearchFarm says.
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, reports ResearchFarm.
The rapidly growing marketplace operation also enables the retailer to gain insights into the latest sales trends and, even though Amazon might have little to do with the products per se, the retailer still receives a cut of the takings. Marketplace also encourages competition between sellers to drive prices down – reinforcing Amazon’s perception of being very price competitive, the study says.
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.
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, ResearchFarm says.
Click & collect remains the fastest growing fulfillment option at the moment – and crucially delivery and returns costs can be driven down by aggregating orders and delivering them to common drop off points; equalising the advantages multi-channel retailers, who leverage their store estates for click & collect, enjoy over pureplays.
While this forecast depends on many different factors – currency exchange rates and inflation expectations plus the fact the future of Carrefour in its current shape is not entirely secure (Dia spin off) – it also reflects a certain weakness on part of the French hypermarket operator, researchers claim. That said, ResearchFarm believes Carrefour will continue to grow, and has found no reasons to doubt consensus forecasts. However, Carrefour’s growth will be nowhere near as dynamic as Amazon’s, even when the dynamic rates mature and drop back from the excessively high 50% in future, the company claims.
According to ResearchFarm, Carrefour’s growth is unlikely to accelerate significantly against tough conditions in France and western Europe, its main market – due to structural issues, the hypermarkets losing out to smaller convenience stores and hard discounters – and not least the internet.
Indeed much of Carrefour’s growth is coming from emerging markets, where the retailer will go head to head with Amazon in future, it says.
Lucht said: “Leaving its ooshop and carrefour.fr operations aside, arguably, Carrefour’s reaction to the online revolution, the tie up with Pixmania, which significantly also includes a marketplace option, comes very late. Once the Carrefour/Pixmania operation is up and running in 2012, Amazon will have added significantly more scale already, making it hard for Carrefour to compete. Should the French retailer want to defend its current position over the next decade, the most likely option will be to buy growth through an acquisition.”