Amazon.com, Inc. (NASDAQ:AMZN) could make up as much as 15% of the growth in total U.S. retail dollars for the fourth quarter, according to some analysts. Forrester Research has released its projections for retail sales during the holiday shopping period, and Evercore ISI analysts weighed in on what those numbers probably mean for Amazon and ecommerce .
Also see Greenlight Q3 Letter: Gains In Apple; Short Amazon.com (AMZN)?
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U.S. ecommerce could grow 16%
In a report dated Nov. 3, 2014, analysts Gregory Melich, Oliver Wintermantel and Shayne Arcilla said they still expect ecommerce sales in the U.S. to grow by 16% or $11 billion year over year in the current quarter. That compares to Forrester Research’s estimate of a 13% growth rate, which would put the total amount of U.S. retail sales online at a record high of $89 billion in gifts.
[drizzle]Looking at the broader retail picture, the Evercore ISI team estimate that Amazon will make up about 15% of total U.S. retail dollar growth in the fourth quarter, which would be approximately $31 billion. It would also put Amazon at nearly 50% more than Wal-Mart Stores, Inc. (NYSE:WMT) in retail dollar growth.
Here’s how Amazon stacks up against some of the biggest retailers in the U.S. Graph is courtesy Evercore ISI.
The difference between Forrester’s number and Evercore ISI’s
The analysts note that their percentage of growth rate seems modestly higher than Forrester’s but say that Forrester Research users a larger dollar base and defines the market as “holiday gifts.” That could include purchases that are not in the Retail segment. However, the Evercore ISI team also said that if using either number, there’s still plenty of room for Amazon to meet their estimate
They expect the online retailer to increase its U.S. revenues and fourth quarter by 20%. They say continued “seasoning” of Amazon Prime members and better execution for all active accounts will drive that increase.
They also say that last mile execution is one of the most important parts of Amazon’s growth. They point out that the U.S. Postal Service’s will be offering Sunday deliveries in half of the U.S. and that Amazon will have 15 sorting centers in operation by the end of this year. Also the online retailer said it plans to hire 80,000 more seasonal workers this year, compared to last year’s 70,000.
Important factors in Amazon’s growth
The analysts are expecting Amazon to grow its U.S. retail revenues by $2.6 billion, which means it’s growing faster than almost all of the other retailers they cover. They say perhaps the most important element in the company’s growth is price, although service and selection have become more and more important for Amazon shoppers in the last couple of years. Convenience has also been cited as an important factor for Amazon shoppers.
The Evercore ISI team’s surveys suggest that Amazon’s Prime memberships now encompass more than 30 million U.S. households. They say the online retailer should continue to season these members so they spend more than $2,000 per year with it, compared to $850 in the first year.
In addition, they said Prime offers the potential for tens of billions of dollars in revenue growth in the next few years. Nonetheless, they do see that it’s difficult for Amazon to lever its expenses due to its continued investments and slowing growth. They do point out that management has made suggestions about more targeted investments, which they say could offer an inflection for EBIT margins next year.
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