Retailers Team Up to Snatch Online Share from Amazon

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Wall Street Journal recently ran a story on how many U.S. retailers are partnering to take on Amazon's ( AMZN ) leadership in the online retail market. Under the program called ShopRunner, the retailers will mimic the Amazon Prime program, which is a shipping program where customers pay a fixed annual fee (currently $79) to get free two-day shipping for most products sold. Some of the online retailers joining the ShopRunner program are Babies 'R' Us, Pet Smart, Dick's Sporting Goods and GNC.

Amazon's leadership in online retail market

Amazon is the largest online retailer in the U.S. and competes with companies like eBay ( EBAY ), Wal-Mart ( WMT ) and Best Buy ( BBY ). The company's primary merchandise categories are Books, DVDs and Music (Media) as well as Electronics & General Merchandise (EGM).  We estimate that online retail sales account for 85% of Amazon's value with EGM constituting 54%, and Books, DVDs and Music constituting 31% of Amazon's stock.

Amazon's share in the U.S. online EGM market has consistently increased from around 2.3% in 2005 to 5.5% in 2009.  We expect it to increase to 9.2% by the end of the Trefis forecast period.

Similarly, we expect its share in the U.S. online media market to increase from around 31% in 2009 to 34% by 2016.

Potential downside to Amazon stock

We believe programs like Amazon Prime lock-in customers and make it less likely that they will make a purchase from competing platforms. In another article , we discussed how innovative programs like 'Amazon Prime' and 'Subscribe & Save' have helped Amazon increase its market share in the past, and could continue to do so in the future.

However, as discussed above, many retailers have partnered in a bid to provide better service than Amazon, especially related to the free shipping program.  A key factor in the success of ShopRunner will be the number of participating retail partners (full list available here ).  If consumers indeed start migrating from Amazon Prime to the program offered by ShopRunner, Amazon's market share could decline. There could be a downside of 5% to the $107 Trefis price estimate for Amazon's stock if its share in the U.S. online EGM market increases at a slower rate to reach around 7% by 2016, instead of 9% that we currently forecast.

You can see the complete $107 Trefis Price estimate for Amazon's stock here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AMZN , BBY , EBAY , WMT

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