Amazon has a secret weapon that leads to increased sales

Consumer behavior has changed dramatically since Amazon (NASDAQ:AMZN) launched thirty years ago. The online marketplace highlights the simplicity of digital retailing, making purchases over the internet and having them shipped to your door. While Amazon began as an online bookstore, the company quickly expanded its offerings until it eventually became known as the “Everything Store.”

While the ease and convenience of online shopping has long attracted consumers, a recent trend has made digital retail even more attractive to customers and is accelerating the migration of trips to brick-and-mortar retailers. This has been a boon for Amazon, the undisputed leader in online sales, and the trend shows no signs of slowing down.

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A little context

The macroeconomic woes of the past two years have been marked by some of the highest prices in years, while inflation has reached its highest level in four decades. The Federal Reserve Bank has sought to curb soaring prices by raising interest rates to their highest level in more than 20 years. This combination of high prices and high interest rates has led many consumers to make difficult choices in the grocery aisles and at the gas pump.

One of the unfortunate side effects has been an increase in retail inventory markdowns or losses resulting from shoplifting, return fraud, and even employee theft. Shrinkage losses have reached epidemic proportions in recent years and become a hot topic among some of the world’s largest retailers.

To combat retail theft, some retailers have decided to store many of the more expensive items targeted by thieves under lock and key. These products include vitamins, personal hygiene items, over-the-counter medications, cosmetics, and even laundry detergent.

These loss mitigation efforts help deter theft, but it’s also a problem for customers trying to quickly grab a few items because it requires finding someone to unlock the items. According to a survey by Consumer World, only about a third of shoppers will call a store employee to unlock the case. Most customers leave without the items they want, which has created a huge opportunity for Amazon.

Seize the opportunity

CEO Andy Jassy addressed the issue on a call with analysts in August, noting that the company is seizing the opportunity, initially focusing on Amazon Pharmacy.

When you think about the experience, how quickly and easily you can order versus walking into a pharmacy…it’s a pretty difficult experience with everything locked behind cabinets, where you You have to press a button to get someone out. and open the cabinets for you.

He went on to note that when it comes to the digital alternative, “customers love the experience” and that the ease and convenience of shopping online “is driving a lot of resonance and purchasing behavior among customers.” customers.”

Keep in mind that pharmacies are not the only ones securing items prone to theft. Big box retailers including Walmart And Targethave also worked to reduce shrinkage by locking frequently stolen items. This opens an opportunity for Amazon to extend its lead as the world’s leading digital retailer.

The undisputed leader

There’s no doubt that Amazon is the undisputed leader in e-commerce, capturing 38% of U.S. digital retail in 2023, more than its top 15 competitors combined, according to an analysis by eMarketer. The company is working to expand that lead by continuing to wrest market share from brick-and-mortar retailers.

Additionally, consumer frustration with locked items has reached a crisis point, leading to a 15 to 25 percent drop in sales, according to anti-theft technology company Indyme. This represents a big opportunity for Amazon to exploit.

In the third quarter, Amazon’s net sales rose 11% year over year to $159 billion, leading to earnings per share that jumped 52% to $1.43. There’s no way to know for sure how much of this increase is the result of frustration with anti-theft efforts, but the ease and convenience of Amazon’s online retail business has long been a selling point for consumers. Brick-and-mortar retailers’ efforts to combat shrinkage appear to be backfiring, increasing Amazon’s already considerable advantage.

Finally, at just 3x forward sales, Amazon stock is attractively priced relative to its vast opportunity.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena holds positions at Amazon. The Motley Fool holds positions and recommends Amazon, Target and Walmart. The Motley Fool has a disclosure policy.

Amazon Has a Secret Weapon That Leads to Increased Sales was originally published by The Motley Fool