Edwin Long is a self-proclaimed video game junkie.
Long, a 26-year-old store clerk, has purchased more than 50 brand new games over the past year.
Those 50 games are the most he’s ever bought, even though he’s not making more money compared to the year before, the suggested price of games hasn’t decreased, nor has he shied away from new games at full price.
It all has to do with where he’s bought the games: the chair in his room.
Online retailers aren’t exactly a new phenomenon. But with a struggling national economy, consumers are far more willing to search out quality deals where they are guaranteed to get what they want, as opposed to the guessing game that is often retail stock shelves.
“I lined up at midnight in November a few years ago to buy a video game at a local place, and after about an hour they sold out,” said Long. “With a few clicks of my mouse, I can do the same thing, so why not?”
Online retail sales made up eight percent of total retail sales for the entire calendar year of 2010. By January, the sector was a larger part of the retail sector than building materials, furniture and home goods, and sporting goods and other hobby goods combined.
In just the past five years, online retail sales have risen from $176 billion in 2005, to more than $235 billion in 2009.
“Online retailers are really helping push retail sales forward as a whole,” said Sean Incremona, senior economist at 4CAST Ltd. “In this economic climate, people want to save money and are willing to find deals. No one is doing that better than sites like Amazon.”
Since opening in 1995, Amazon’s company motto has been to offer customers any item they’d like to buy online, at the lowest price possible. If the recent bottom-line is any indication, they have.
Amazon’s net sales were $34.20 billion in 2010, an increase of 40 percent from the previous year. Net income increased as well, from $902 million in 2009, to $1.15 billion in 2010, an increase of 28 percent.
Those positive results are showing up on Wall Street as well. Morgan Stanley raised its price target for the stock this past week, from $205 to $225. The stock closed Friday at $180.13, which represents nearly a $10 gain over the past month.
Amazon is striving in this new consumer-first climate, and are pushing innovation that moves money in their favor. Amazon’s new iPhone app, called Price Check, allows customers to compare the price of an item in-store to online retailers by scanning the barcode, taking a picture, or just typing out the name. On the weekend following Black Friday, that application was used more than a million times, and more than two million during the month of December.
While online retailers continue to show strong gains, the question begs, where is the inflection point?
“We believe specialty retailers will experience accelerated erosion of market share to Amazon,” said Scott Devitt, an analyst for Morgan Stanley. “As investors gain clarity on the sources for Amazon’s sales growth, they will better understand the length of the runway and overall story.”
The main source for that continued growth would be in the book selling market.
The traditional stalwarts in that section of retail have been Borders and Barnes & Noble, but both are struggling mightily. On the heels of Borders filing for bankruptcy protection last month, Barnes & Noble has made plans to close 200 of their underperforming stores. Devitt estimates overtaking this industry would create nearly a $6.7 billion opportunity for Amazon and other online retailers.
“What Amazon is doing in the online marketplace is exactly what Walmart did in the big box retailer marketplace,” said Incremona. “They are making every dollar count, but doing it in a way that keeps customers coming back.”
The most recent game Long purchased was Crysis 2, a first person shooter for the Xbox 360. While the game was officially released on March 22, Long purchased the game about a week earlier for $53.99 on Amazon, and it was shipped the day it was released for free. Long received the game on the 23rd, along with a $10 credit for a future purchase.
At the Best Buy location roughly three miles away from his home, the game still sells for $59.99, the suggested retailer price. While that $6 is not a huge sum in itself, the gap in savings widens when you add the New York State tax that Best Buy must charge and Amazon avoids by not having a physical store, as well as the perceived expense of gas.
“I spend less money, someone brings it right to me, and then I get a coupon as well” said Long. “It’s pretty much a win.”
So perhaps the better question is, will there even be an inflection point?
“Online retailers have succeeded by pushing forward in areas where other retailers haven’t been as efficient,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. “But at some point, those areas run out, and you can’t expect consumers to buy everything online.”
The biggest block for further online retail growth might be the one that kept Long out of Best Buy – tax implications.
Recent efforts to pass a bill that would require online retailers to charge sales tax based on where the purchaser lived have all but failed. But as traditional retail outlets see further declines, additional pressure might be placed on legislators by retail and worker unions to have the tax applied to all online sales.
But with efforts into further technological aids for consumers, like iPhone apps, social media extensions and an overall push for further customer satisfaction, online retailers like Amazon are hoping to keep the momentum moving even if a tax is put in place.
“Offering the cheapest goods only gets you so far,” said Sucharita Mulpuru, senior retail analyst for Forrester Research in a release. “You’ll need more strategies to be successful than just price point.”