Analyst: Amazon's Total Domination Overstated

NEW YORK — Between the launch of its convenience store concept Amazon Go, the debut of Instant Pickup, its need-it-now pickup service, and its recent acquisition of Whole Foods Market, Amazon has been generating buzz of domination in the retail channel.

However, one retail analyst has maintained a rational view. Moody Analytics, a financial services company, analyst Charlie O’Shea doesn’t deny the impact Amazon has had on the retail channel, but thinks the hype is out of control.

According to the analyst, Amazon is still a long way from dominating the U.S. retail market, and simple math shows it is even further away from taking over food retail.

"Many see Amazon's purchase of Whole Foods as further evidence that the online giant is dominating U.S. retail, and the company is likely to remain the pre-eminent player in online shopping," O’Shea said in a report released Aug. 30. "But online sales still account for only about 10 percent of overall U.S. retail sales, with a much lower percentage in the grocery segment, leaving the big brick and mortar retailers, led by Walmart, still really formidable competitors in the industry."

He notes that brick and mortar retailers are overlooked, considering they’ve narrowed the gap with Amazon when it comes to online shopping. However, Amazon’s stock has been outperforming that of other retailers based largely on the promise of further expansion and potential expense reductions. According to O’Shea, aside from sales growth, Amazon’s performance on other financial metrics is not as good as the largest U.S. retailers.

O’Shea also speculates that Amazon Prime membership base estimates are inflated. Some market pundits put the membership as high as 85 million, but by Moody’s calculations, he suggests Prime membership is closer to 50 million. That compares to Costco’s paid membership of 47.6 million, and total membership of 86.7 million.

The analyst also disputes the notion that Amazon will soon dominate the U.S. food retail market, which is valued at $800 billion.

"We believe it's a big stretch to say Amazon will dominate the U.S. food retail business in the next two years. Even with Whole Foods in its basket, its food sales still amount to less than $20 billion annually," O’Shea said.

To read the full story, visit Convenience Store News sister publication Retail Leader.