Online sales in the US grew by nearly 15% (pdf) between the fourth quarter of 2014 and and the same quarter last year, vastly outpacing overall retail sales that grew at 1.3% over the same period. The numbers suggest just how crucial e-commerce has become for any retailer looking to generate growth. The $107 billion in e-commerce accounted for 7.5%, all US retail sales in 2015.)
Now check out the last three years of sales growth in North America logged by Amazon. Its level of growth towers above the US rate, as Amazon continues to to take market share in the fast-growing category. The company’s net sales in North America for the fourth quarter grew to $21.5 billion, a 24% increase from the same period in 2014.
Of course, other retailers have noticed that the growth game is online. And some are successfully boosting their e-commerce presence. Target just reported year-on-year online sales growth of 34% for the fourth quarter, which even tops Amazon’s brisk pace.
But the online game isn’t easy. The high costs of logistics and shipping—Target promoted free shipping on online orders during the holiday season—eats into profits. Target’s gross profit margin, which tells you the return the company gets on the sale of merchandise, contracted from 2014’s 28.5% to 27.9% in the fourth quarter of 2015.
On the other hand, Amazon has been optimizing itself to operating on skimpy profit margins for its entire existence, enabled by founder and CEO Jeff Bezos’ single minded focus on reinvesting for growth. It’s unclear if Target—or any other retailer for that matter—will have similar staying power.