Amazon Has a Secret Weapon That's Driving a Surge in Sales

There's been a dramatic shift in consumer behavior since Amazon (NASDAQ: AMZN) launched three decades ago. The online marketplace put a spotlight on the simplicity of digital retail, making purchases via the internet and having them shipped to your door. While Amazon was originally an online bookstore, the company quickly expanded its offerings until it eventually became known as the "Everything Store."

While the ease and convenience of online purchasing have long been an attraction for consumers, a recent trend has made digital retail even more appealing for customers and is accelerating the migration away from trips to physical retailers. This has been a boon to Amazon, the undisputed leader in online sales, and the trend shows no signs of slowing.

Image source: Getty Images.

A little background

The macroeconomic headwinds of the past couple of years have been marked by some of the highest prices in years as inflation hit a four-decade high. The Federal Reserve Bank sought to rein in runaway prices by increasing interest rates to their highest level in more than 20 years. This combination of high prices and high interest rates caused many consumers to make tough choices in the grocery aisle and at the gas pump.

One of the unfortunate side effects has been an increase in shrinkage or retail inventory losses resulting from shoplifting, return fraud, and even employee theft. Losses caused by shrinkage have risen to epidemic proportions over the past few years and have become a hot topic at some of the world's largest retailers.

To combat retail theft, some retailers have taken to storing many of the higher-priced items targeted by thieves under lock and key. This products include vitamins, personal hygiene items, over-the-counter medications, cosmetics, and even laundry detergent.

These loss mitigation efforts are helping to deter theft, but it's also a hassle for customers trying to quickly pick up a few items, as it requires finding someone to unlock the items. Only about one-third of shoppers will seek out a store employee to unlock the case, according to a survey conducted by Consumer World. Most customers simply walk out without the desired items -- which has created a huge opportunity for Amazon.

Seizing the opportunity

CEO Andy Jassy addressed the issue on a call with analysts in August, noting that the company is seizing on the opportunity, initially focusing on Amazon Pharmacy.

When you think about the experience and the speed and ease with which you can order versus walking into a pharmacy ... it's a pretty tough experience with how much is locked behind cabinets, where you have to press a button to get somebody to come out and open the cabinets for you.

He went on to note that when it comes to the digital alternative, "customers love the experience" and that the ease and convenience of buying online "is driving a lot of customer resonance and buying behavior."

Keep in mind that it isn't just pharmacies that have been securing items that are prone to theft. Big box retailers, including Walmart and Target, have also been working to reduce shrinkage by locking up often pilfered items. This opens up an opportunity for Amazon to expand its lead as the world's leading digital retailer.

The undisputed leader

There's no question that Amazon is the undisputed e-commerce leader, capturing 38% of U.S. digital retail in 2023, more than its next 15 biggest competitors combined, according to analysis by eMarketer. The company is working to expand that lead by continuing to wrest market share from physical retailers.

Furthermore, consumer frustration regarding locked-up items has reached a tipping point, causing sales declines of 15% to 25%, according to anti-theft technology company Indyme. That represents a big opportunity for Amazon to exploit.

In the third quarter, Amazon's net sales increased 11% year over year to $159 billion, resulting in earnings per share that jumped 52% to $1.43. There's no way to know for sure how much of this increase is the result of frustration with anti-theft efforts, but the ease and convenience of Amazon's online retail have long been a selling point for consumers. Efforts by physical retailers to combat shrinkage appear to be backfiring, increasing Amazon's already momunmental advantage.

Finally, at just 3 times forward sales, Amazon stock is attractively priced compared to its vast opportunity.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Target, and Walmart. The Motley Fool has a disclosure policy.