As Americans have been homebound during much of the COVID-19 pandemic, one may have expected online sales to have completely taken over and become the dominant form of retail sales in the United States. But a new report from NetChoice, a research and advocacy organization supported by groups like Google, Amazon, Etsy and Facebook, shows that online retail only grew by 6.7% in 2021. While this was the largest annual gain in over a decade, it is clear online sales are still far from overpowering in-person retail.
Some politicians have called for the breakup of Amazon, as well as other big tech companies like Google and Facebook because there is a perceived market dominance by these online giants. In reality, however, Census data reveal online sales still only make up about 15% of total retail sales. That number may have peaked around 17% during the COVID-19 pandemic, but at no point have online purchases overpowered traditional storefronts.
In fact, in the last few years, online sales have become a complement to both small and large businesses, creating dynamism and competition in the retail industry that is far from being dominated by monopoly. The NetChoice report finds that the nation’s top five retailers (combined physical and online sales) only account for about 25% of total retail sales each year.
Experience reveals that through third-party marketplaces, small businesses have been able to form up and make sales with much more ease than before. A small business model that has become popular in recent years, for example, is for sellers to create a retail website with template services like Shopify, market the brand with social media, sell on Amazon, and eventually try to land a deal with a physical retail location like Walmart or another retailer that focuses on a specific niche. Popular Etsy stores are just one example of this phenomenon.
The opening of third-party online sales platforms has generated competition and small business creation because it takes away many of the logistical and infrastructure concerns small shop owners face. This allows them to focus on their products and increase revenue.
For years, Bed Bath and Beyond (BBBY) refused to engage in third-party online sales and consequently saw its stock price dwindling over the last few years. Upon the recent announcement that the company would open a digital marketplace for third-party online sellers, its stock jumped 70%. The company hopes this move will help them compete with other online marketplaces, like Amazon and Etsy, which are more generalized and have few physical locations.
Despite the rise in popularity of online shopping, physical retail locations still play an important role for many industries. In-person sales make up 85% percent of all retail and a survey included in the NetChoice report found that 77% of consumers feel it is somewhat important that a retailer offers a physical location.
Stores like Bed Bath and Beyond continue to test business models and retail offerings that match a highly dynamic consumer market that values online and physical sales. This suggests that companies like Amazon which have seen success in generalizing online sales may have competition from retailers who have the advantage of having physical locations for customers to see and touch products.
The retail market is far from being stagnant or overly dominated by one company. Innovations in online sales will continue to generate a swath of competition for producers and sellers. Companies like BBBY are a good example of traditional retailers that may have been slow to the game o balancing their physical and online presences but are adapting and may be able to represent serious competition to retail giants like Walmart and Amazon.
The emergence of new competitors and the ease of entry for small businesses is on its face evidence the market is working well for consumers. Amazon has innovated and grown itself into an e-commerce giant, but it is far from the monopoly that some politicians make it out to be. Congress and states should avoid stifling the dynamic and competitive online marketplace with unnecessary anti-trust interventions.