There are monopolies and there are oligarchies. The United States may not have a monopoly in retail, but there sure seems to be an oligarchy for the “haves” crushing the “have-nots.” Imagine when just three of the countless retailers and online sites are commanding 50-cents and 75-cents of every incremental dollar being spent by U.S. consumers.
Morgan Stanley’s report from Simeon Gutman and Brian Nowak is calling the big-three players out — Amazon.com, Inc. (NASDAQ: AMZN); Walmart Inc. (NYSE: WMT); and Costco Wholesale Corporation (NASDAQ: COST) — as “Retail’s Triple Threat.” The team’s view is that these three players are taking 50% of the incremental sales in retail and over 75% of incremental eCommerce sales. The three giants were also noted as likely beneficiaries from the U.S. port strike and two large hurricanes in Q3-2024.
Think about this for a minute. Of all new or additional sales being spent in retail, three companies are taking half of those incremental sales. And if it is online, that’s over three-quarters of the incremental sales. Now think about how many large retailers are followed by small niche retailers and then one-person or small website sellers fighting for the other half of incremental sales.
STRONG E-COMMERCE TRENDS IN GENERAL
It’s no secret that eCommerce trends keep rising year after year. This is at the expense of brick-and-mortar, but it means that the brick-and-mortar players who have the best offerings and experience for online shoppers are winning at the expense of all others. Morgan Stanley noted that eCommerce sales have outgrown retail sales by over two-times since Q2-2023 — up about 7.6% in Q3-2024 versus about 3.5% growth in total retail sales from a year earlier. This has created ongoing e-commerce penetration expansion.
AMAZON VS. WALMART
Amazon and Walmart are commanding about $0.36 of every incremental $1.00 of retail sales. That’s about $0.24 for Amazon and about $0.122 for Walmart. Morgan Stanley is saying this is “the big getting even bigger” at an accelerating pace. And Walmart is the faster growth of the two — rising to 12.2% in the last quarter from 8.8% at the end of 2023. The team said:
This growth reflects WMT’s strength in attracting high-income consumers through WMT+ membership, 3P/Marketplace, and an industry leading online grocery platform.
Amazon and Walmart are driving even more at the eCommerce level with about $0.73 of every incremental $1.00 in the channel. That’s about 55% for Amazon and about 18.3% for Walmart. The two alone commanded about $14 billion of the $19 billion in incremental online sales dollars in Q3-2024. Walmart’s eCommerce sales include advertising revenue, but even though both giants saw sequential declines in their incremental eCommerce share from the prior quarter their absolute share levels were referred to as “still healthy and unparalleled in retail.”
COSTCO ONWARD & UPWARD
Morgan Stanley notes that Costco is continuing to build momentum. Its incremental share was 9.8% in Q2-2024, That’s up from about 7.1% of the incremental share in Q1-2024 and up from about 4.9% in Q4-2023…. and up from just about 3% of the incremental share from 2021 to 2023.
IN THE END…
While this report was on the heels of Walmart’s strong earnings reaction, the reality is that this showing how and why three large retailers are dominating their industries. Look at the trends that have been coming out of Target, Dollar General, Dollar Tree, and elsewhere. It doesn’t mean that there are no other retail winners. It just means that for every new dollar being spent in retail and online three companies are gobbling up the lion’s share of each incremental dollar being spent.
