In 2023, Americans spent a staggering $7.2 trillion on ecommerce, with almost half that figure flowing through a single company, Amazon.com Inc. (AMZN). The digital behemoth has reshaped how we shop, as well as entire industries, supply chains, and consumer expectations. American spending on ecommerce rose a third from 2019 to 2023, and Amazon sales rose 13% in the first quarter of 2024 over the same quarter a year before, compared with 8% for U.S. ecommerce sales as a whole during the same period. As such, despite the efforts of retailers like Walmart Inc. (WMT) to cut in on the ecommerce market, Amazon continu𒀰es its dominance, at least in the U.S🥃.

Welcome to the age of the "Amazon effect." This describes the profound impact of ecommerce—spearheaded by Amazon—on traditional retail and beyond. It encompasses the shift toward online shopping, the demand for ultrafast shipping, and the expectation of endless product choices. For consumers of its products, it has meant unprecedented convenience and often lower prices. For retailers, it has sparked significant changes, frequently forcing a choice of adaptation or obsolescence. Despite lowering its carbon footprint in 2022 and 2023, for all of us, it's meant an increase in greenhouse emissions, with Amazon accounting for the emissions of about 10 million American homes.

As its influence grows and its reach extends into new sectors like healthcare, we'll examine Amazon's impact and what's expected in the years ahead in ecommerce.

Understanding the Amazon Effect

As online shopping increases, the gains for ecommerce businesses are coming at the expense of brick-and-mortar retail stores. An increasing number of shoppers have been turning to their screens instead of physical stores; online sales were about 11.2% of retail sales in the last quarter of 2019, the last one before a pandemic shifted many to online shopping. Ecommerce sales in the first full pandemic period of the second quarter of 2020 accounted for 16.4% of retail sales, according to the U.S. Census Bureau, and it's been between 14.5% and almost 16% in the years since.

Amazon.com, which debuted in 1994, has maintained its lead in U.S. online sales, becoming the poster child for this change and giving the Amazon effect its name. The Amazon effect is cited as the primary reason for the decline in brick-and-mortar store sales, which has often foreshadowed the stores' eventual closure. More than 4,600 stores, including those owned by major retailers, closed in 2023, an 80% increase from 2022.

Beyond driving do൲wn the revenue of traditional retail stores, the Amazon effect has also led to significant changes in consumer shopping patterns. For instance, based on the convenience they experience from online shopping portals, today’s shopper expects a lot more variety when visiting retail stores. While reading the contents or specifications mentioned on a small-sized pack containing an electronic gadget or cashew nuts in a retail store may not be possible, the same product details can be easily accessed in large text on online shopping sites.

It's also changed where Americans are employed. Walmart Inc. has long been the number one employer, but the Amazon effect is discernible in the next three of the largest employers in the U.S.: Amazon (1.53 million employees as of mid-2024), FedEx Corporation (FDX, 529k employees), and United Parcel Service Inc. (UPS, 500k employees).

Advantages and Disadvantages of Online Shopping

The need to drive to a store, pick out different items, and stand in line to buy them is eliminated with online shopping. Purchasing an item online is often cheaper than purchasing in a store, although this is not🍎 always the case.🔥

However, the technology powering these advantages comes with significant drawbacks. Ecommerce platforms use big data and AI to analyze shopping patterns and behavio🍨rs, creating personalized recommendations and offers. While this can be helpful, it often cross🅺es into the unsettling. The personalization can feel invasive or just tacky: That vintage record player you bought as a gift has long since had the algorithm thinking you're a hipster vinyl enthusiast, flooding your recommendations with obscure folk recordings and vintage audio equipment that costs more than your car.

The trade-offs between online and physical retail are complex. When shopping online, customers can't interact with products before purchasing, which can lead to dissatisfaction or increased returns. To address this, some ecommerce platforms now offer hybrid solutions like online ordering with in-store pickup.

This creates an interesting dynamic where consumers may use physical stores to examine products but then purchase online at a lower cost. While beneficial for consumers, this "showrooming" phenomenon poses significant challenges for brick-and-mortar retailers, which bear the price of a physical presence without consistently securing the sale.

As ecommerce continues to grow, it's reshaping entire industries and local economies. Closing physical stores limits product interaction prospects and alters community landscapes. The big box stores had already put many mom-and-pop retail stores out of business a generation ago; the Amazon effect has helped shutter the rest in towns across the U.S. Balancing the convenience of ecommerce with privacy concerns, the value of physical retail experiences and broader economic impacts remains a crucial challenge for consumers, retailers, and policymakers alike.

The Future of Retail

The 2020 pandemic—during which people worldwide faced ♌quarantines, stay-at-home orders, and travel bans—brought to light the importance of online shopping. For many, it became a necessity, as opposed to a luxury. As long as the internet exꦫists, online shopping isn't going anywhere.

However, brick-and-mortar stores remain a very important piece of the economy, with sales rising as the pandemic eased. Physical retailers had more than $7 trillion in revenue in 2023, with that number estimated to reach almost $9 trillion annually in 2026.

Still, brick-and-mortar stores need to be ready to adapt as online shopping continues to gain ground. To draw customers to a physical location, stores often need to offer something that can't be delivered online. This could be an experience, or a feeling people get when they visit the location. Some malls offer theme parks and are becoming more focused on being a destination to entice people to spend the afternoon or evening at the mall.

Some retail outlets have thrived despite the increase in online shopping. This is because they offer a unique or high-quality product that isn't sold by online retailers or can't be easily replicated into a cheap knock-off product (that others can sell online).

Other retail chains have created a culture around their product and stores where people like to go and be seen going there. More brick-and-mortar operations will likely need to adopt these tactics to thrive as online shopping has more 澳洲幸运5官方开奖结果体彩网:market share.

The Bottom Line

The Amazon effect has fundamentally reshaped the retail landscape, extending beyond online shopping. The effect stands for the shifting standards for convenience, price competitiveness, and product variety, forcing traditional retailers to adapt or risk obsolescen🦩ce. The effect has redefined customer expectations, making fast (often free) shipping and vast product selection the new norm.

The Amazon effect has also meant the closure of many brick-and-mortar stores, altering the fabric of local communities. The effect extends to labor markets, supply chains, and urban planning. As Amazon continues to expand into new sectors, its influence grows, raising important questions about market competition, data privacy, and the future of retail. But it faces competition, not just from Walmart but also from Chinese e-tailers with direct access to China's suppliers.