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Amazon Could Still Gain E-Commerce Market Share in 2020 - Motley Fool

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Amazon (NASDAQ:AMZN) has been struggling to keep up with surging demand amid the coronavirus pandemic. As a result, some shoppers are looking to its brick-and-mortar competitors that can use their omnichannel capabilities to fulfill orders faster than Amazon's backed-up warehouses. Early reports show that Amazon lost significant market share in April versus competitors like Walmart (NYSE:WMT).

But new estimates from eMarketer show that Amazon may still gain share of the e-commerce market in 2020, despite already holding a dominant position. The new estimate shows the market leader increasing its share of e-commerce sales to 38% in 2020, up from 37.3% in 2019.

While the 38% market share estimate is a decline from the 38.7% eMarketer previously estimated, the updated report and estimates from the researchers provide a few key takeaways for Amazon investors.

The Amazon "smile" logo in orange

Image source: Amazon.

Where e-commerce growth is coming from

Online sales will increase 18% in 2020, according to eMarketer's forecast, and the biggest drivers of that growth are food & beverage. Online grocery sales will increase 58.5% this year. eMarketer analyst Andrew Lipsman said online grocery shopping "permanently catapulted three or four years into the future in just three or four months."

Walmart has been the biggest beneficiary of the growth of online grocery sales, and it's made efforts to make health, beauty, and personal care items more available through its curbside pickup program alongside its grocery selection. Over half of new online grocery shoppers have used Walmart, and about two-thirds of its online sales growth in the first quarter came from its grocery platform.

However, Amazon has a massive opportunity in online grocery. It's still in the early stages of offering grocery fulfillment through Whole Foods, and it's quickly accelerating expansion there. It increased capacity by 160% since March, including opening two new online-only grocery stores in Los Angeles.

While Amazon is winning an outsized portion of grocery sales, it still has a big opportunity to grow and take share from brick-and-mortar grocers and compete with Walmart's curbside pickup and delivery options.

Competing with omnichannel fulfillment over time

The shift from brick-and-mortar sales to online sales will likely happen in multiple phases. With stores closed, shoppers are being directed to a retailer's website in order to buy the things they would've bought in store. That means many shoppers are merely substituting going into a specific retailer's store with going to that retailer's website.

However, as shoppers get used to ordering more things online, that behavior might change. Instead of looking for that item on the website of the store where they'd shop for it in person, they might shift that search to where they start most of their online product searches. For most people, that's Amazon.com. More online product searches start on Amazon than any other search engine.

That bodes well for the long-term potential of Amazon to keep gaining market share of both overall retail and online retail. 

One factor that could significantly influence shoppers is fulfillment speed. What was a strength for Amazon last year has turned into a weakness. Wait times for shipments from Amazon's warehouses have been extended for many items, while those same items could be ready for pickup from Walmart the same day a customer places the order.

This is a challenge Amazon will be able to overcome in time. It's already hired 175,000 new workers to help fulfill orders faster, and it's offering permanent positions to 125,000 of those workers. It's constantly expanding its logistics network of warehouses, fulfillment centers, vans, trucks, and planes. 

As Amazon ramps up fulfillment capacity, it should start winning sales it's been losing to brick-and-mortar competitors able to use omni-channel fulfillment. That might not be too far off, either. Amazon has reportedly scheduled Prime Day for September this year, and it wouldn't have done so if it didn't think it could serve millions of Prime members with speedy delivery.

The shift from brick-and-mortar to online retail will ultimately benefit Amazon, even if the results aren't immediate. And by the second half of the year, Amazon should be gaining market share once again thanks to changing shopper behavior and Amazon's strategic investments in growth areas like grocery.

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