Supply Side: Online retail to top $590 billion by 2021

Online retail should top $590 billion in annual sales by 2021. U.S. online retail topped $100 billion in 2006, and online sales are expected to top $345 billion this year, according to Forrester Research.

Amazon has driven a significant amount of the e-commerce growth over the past decade. Forrester said Amazon captured $23 billion more in U.S. e-commerce sales last year over 2014. Amazon’s growth accounted for about 51% of the total U.S. online sales growth last year. Walmart.com is a distant second place despite spending more than $6 billion in this area in the past three years.

Market watchers suggest Walmart.com will never catch Amazon in terms of market size and share, but in terms of omnichannel, Walmart has a head start with its nearly 5,000 U.S. stores which can be showrooms, pickup centers and fulfillment centers as more retail gravitates online. Amazon recently has become interested in opening physical stores that are a test bed for consumer convenience.

While the majority of retail sales still are conducted in physical stores, the relationship between physical and online commerce has never been more connected. Forrester said more than 40%, or $1.5 trillion, of U.S. retail sales were in some way impacted by the internet. Whether that is researching products ahead of the purchase or rating and writing reviews of the item purchases online afterwards, shoppers are using multiple shopping channels for a single purchase.

Jason Long, CEO of Shift Marketing Group, said there are low barriers to entry for online retailers, whether they choose to set up their own store or sell through various marketplaces or use both, the competition online is fierce and will only intensify.

Forrester said merchants surveyed earlier this year cited online and and online merchandising as their top two priorities for 2016. The merchants said in light of expensive paid search costs, they were more likely to focus on customer service relationships, personalization and loyalty programs to try and drive more engagement with shoppers.

Noting that omnichannel efforts are a work in progress for many retailers, merchants were optimistic about ship-from-the-store, in-store pickup programs and other efforts such as endless aisle which have proven successful in getting shoppers in-store to search online for expanded product options.

Sam’s Club reports moderate success with endless aisle in healthcare products such as lift chairs, fine jewelry and patio furniture. Shoppers can see a small sampling of these products in the clubs, but there is a much broader selection in a catalog located in the clubs. The club members select the item they want, pay for it and it can be delivered to their home the following day in many cases.

Gaining Share

Because the barrier to entry is low, the online retail market is huge, and the market share held by Amazon makes gaining any ground a constant challenge for competitors like Walmart.com.

Wal-Mart has spent around $6 billion on its e-commerce division in three years, including buying Jet.com for $3.1 billion earlier this year. In buying up a competitive threat like Jet.com, Walmart remains well behind Amazon in online market share. Last year Amazon’s total online sales online $79.268 billion, making it the nation’s largest e-tailer. Amazon’s Prime membership has grown to 63 million, with almost half the households in the U.S.

Wal-Mart’s e-commerce sales of $13.484 billion rank the retailer in second place. Wal-Mart also offers a shipping pass membership, akin to Prime which was launched this year, but the retailer has not shared how many subscribers have signed up.

Analysts said Prime is not just about free shipping. It brings subscribers into the Amazon ecosystem. That is something Wal-Mart has not been able to accomplish, despite launching WalmartPay earlier this year along with other mobile app services such as gift registry and prescription refill.

Apple ranks third at $12 billion in online sales. Macy’s comes in fifth at $4.928 billion, while Home Depot ranked sixth with $3.78 billion in online sales last year. Wal-Mart competitor Target had $2.524 billion in online sales putting it in 11th place.

Wal-Mart’s online traffic equals just 7% of weekly store traffic and is approaching 3% of the sales. The majority of Wal-Mart’s online shoppers also shop in the retailer’s stores, 80% at least once a month and half of online shoppers frequent the retailer’s stores once a week, according to analysts with Cleveland Research.

Keith Anderson, vice president of strategy and insights for Profitero, told the Northwest Arkansas Business Journal Wal-Mart is known as a fast follower in all of its other success stories over the years. He said when it comes to e-commerce it’s the first movers who will likely win the gold. He said Amazon was the first mover in e-commerce and continues to invest aggressively which has garnered it an accelerated growth over Walmart.com and the rest of U.S. retail.

Anderson said Amazon has been at the e-commerce game much longer, and it’s not important that Wal-Mart ever catch up entirely. He said there is likely room for two big players, and Walmart U.S. has a big lead in terms of grocery, which will likely be one of the last categories to migrate purely online.