Growth Trend: Ecommerce – It’s (Amazon) Prime Time

E-commerce is redefining the way consumers and businesses interact for the purchase and sale of goods. Through significant improvements in the speed and reliability of delivery, e-commerce as a channel has inflected positively, driving accelerated sales and positive network effects for the biggest players, while the smaller players who can’t compete on fulfillment or through omni channels will lose market share.


The growth in e-commerce will benefit not only the leading e-commerce platforms but also the online payment providers who facilitate the transactions, as well as the logistics companies that provide transportation and delivery services. Companies like Apple and Nike that have successfully developed true omni channel offerings will be insulated from the shift in sales from offline to online.

However, there will be numerous losers, particularly traditional retailers that have failed to invest and compete with companies like Amazon on rapid e-commerce fulfilment. The below illustration shows how we think about the ramifications of growth in e-commerce as an Area of Interest (AoI).



The Fulfilment Arms Race

Increasingly, we see e-commerce players differentiating themselves by fulfilment; whereby the speed, cost, reliability of delivery and the ease of return is gaining importance over price.

In this fulfilment ‘arms race’, Amazon has a huge lead, investing heavily in its core geographies of the US, Europe and India. This has allowed Amazon to develop its subscription based Prime offering which provides guaranteed free delivery within 48 hours. This fulfilment guarantee is a clear competitive advantage versus its peers which drives increased adoption, increased sales and strong network effects, allowing Amazon to take share in a growing market.

The illustration below shows the degree to which Amazon has invested in its logistics in its core geographies. Using the US as an example, Amazon has now built a US$1 billion fulfilment centres within 20 miles of 65% of households (that have annual income above US$50k).




The Prime Reason

Amazon’s differentiated logistic infrastructure allows them to deliver the guaranteed free delivery window of 48 hours, which in turn drives sales and repeat purchases.

We estimate that Amazon now has 49 million Prime members in the US alone, having signed up 15 million members last year.

This is vitally important as Prime members, attracted by the ease of the service, spend on average 4.5x as much on Amazon a year versus non-Prime members. Furthermore, once a Prime member has been on the service for more than seven years they spend on average up to 10x as much versus a non-Prime member, making it the destination of choice for the majority of their discretionary spending. Such is Amazon’s dominance of the trend, we now see e-commerce sales growing 12% per annum in the US and Amazon is still growing its share of e-commerce sales, driving the category to the point where today one in three e-commerce purchases in the US is now done on Amazon.

Despite this dominance, Amazon is not standing still and continues to innovate, with its Prime Now service delivering goods to 27 US metro areas, within 1-2 hours. Convenience at this scale will only continue to widen the gap between Amazon and traditional retailers, and as such we expect them to continue to take share in the E-Commerce vertical.



Win the Consumer

The key message is that Amazon’s goal in retail is to win the consumer, through unrivalled fulfilment and positive consumer experience.

Traditional retailers in Amazon Prime’s markets need to adapt or die. As such, we would expect traditional retailers to sacrifice margins and invest heavily in their own e-commerce offerings over the coming years, favouring incumbent logistics companies like Fedex and UPS.

Conversely, traditional single brand retailers with store and mall offerings, like Ralph Lauran for example, need to look at the likes of Apple and Zara and evolve into true Omni Channel offerings that can nurture their brand and its value via reduced physical presence and better loyalty offerings.

Finally, those retailers in markets not yet exposed to Amazon Prime, will need to prepare in advance before it arrives, building loyalty schemes and online offerings now, rather than waiting like their peers in the US have, where it’s often too late.


Munro Global Growth Fund

The Munro Global Growth Fund holds core long positions in Amazon, Fedex and US payments processor Vantiv. The Fund is short various legacy retailers in the UK and Europe.

At Munro Partners, through the Munro Global Growth Fund, (, we identify sustainable growth trends that are under appreciated and mispriced by the market, and the resulting winning and losing stocks.




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