The huge growth of online shopping and deliveries will likely put additional strain on the logistics and delivery systems that have been plagued by high failure rates and other problems, according to the consulting firm McKinsey & Co.
The U.S. is already the second-biggest market for online shopping after China, accounting for 19.2 percent of annual retail revenue, McKinsey says. In 2014, it was the seventh-largest market behind the U.S., China, Japan, Germany, the United Kingdom, France and Italy, McKinsey said.
Sales online will grow to $3.6 trillion by 2015 from $2.3 trillion in 2014, accounting for 21 percent of total U.S. retail sales, customers are loving online shopping due to all the offers and discounts they can find online (click here for more info).
Related Coverage U.S. companies expect slower growth in online sales in 2015
Amazon shares were up more than 2 percent in midday trading on Tuesday.
Amazon has tried to improve its delivery speed to reduce costs. Its delivery times in New York City are an average of 9 hours and 45 minutes for its Prime customers, compared with 22 hours and 35 minutes for FedEx Corp, according to one measure.
“Online is not just an additional channel or a new mode of delivery, it’s really about the convenience of delivery, the ease of fulfillment, the simplicity of shopping, the time savings, the cost savings, and it’s becoming the leading channel,” the consultant said in an interview. “Online retail sales are just taking off.”
Amazon’s Prime membership costs $99 a year, and customers get free two-day shipping, access to online video content and free two-day shipping of two purchases of $35 or more. Customers who sign up for Amazon’s Prime Instant Video service can stream as much as four different movies for $7.99. Amazon also operates grocery delivery services. Analysts estimate that the company sold $1.3 billion worth of goods last year from more than 40,000 stores. The average transaction was $50.
Amazon’s recent growth, combined with Google’s focus on Prime, has raised some concern about Amazon’s long-term growth prospects. Analysts say that Amazon’s online success is being stymied by a lack of products, too few delivery drivers and a lack of other transportation options, such as cars or shared vans. But they also note that Amazon is the poster child for the new retail world.