Amazon.com Inc. has had great success in exporting its ecommerce model to Western Europe and Japan. It hasn’t been as consistently successful in less-developed economies, though it’s making a huge investment in India after admitting defeat in China.
International is a significant part of Amazon’s business: Markets outside of the United States accounted for more than a quarter of the company’s revenue in both 2019 and 2018 (and that excludes any international revenue for Amazon Web Services, the company’s cloud computing unit). However, international online stores have dragged down profits. That’s in large part due to Amazon’s big investments in India where it’s pledged to spend $5.50 billion in a market where millions of consumers are gaining internet access for the first time through inexpensive smartphones.
Despite a 13.4% increase in international segment sales in 2019 to $74.723 billion from $65.866 billion in 2018, Amazon reported a loss of $1.69 billion in its international operations. That was down from a loss of $2.14 billion in 2018 and $3.06 billion in 2017.
However, one of the many bright spots in Amazon’s blockbuster second quarter of 2020 was the $345 million profit posted by its international operations, which lost $601 million in the same three-month period in 2019. Higher sales spurred by the coronavirus pandemic allowed Amazon to make better use of its extensive infrastructure—including 639 fulfillment centers outside of the United States, according to logistics consulting firm MPWVL—making that unit more profitable.
Those distribution centers enable Amazon to offer fulfillment services to sellers on its 15 marketplaces outside the U.S. The gross merchandise value of goods sold on Amazon’s worldwide sites, including sales on Amazon.com in the U.S., amounted to $340.40 billion, or 9.2% of total worldwide online retail purchases of $3.69 trillion, according to Digital Commerce 360 estimates. Gross merchandise value, or GMV, includes sales by Amazon and by marketplace sellers on its sites.
That puts Amazon third worldwide in GMV to the two big China marketplaces of ecommerce powerhouse Alibaba Group Holding Ltd.: Taobao and Tmall together posted GMV of $853 billion in fiscal 2019, or 23.1% of global online retail sales. Amazon is No. 1 in the Digital Commerce 360 Top 1000 ranking of North America’s leading online retailers and No. 3 in the Digital Commerce 360 Online Marketplaces ranking of global operators of multi-merchant shopping portals.
Amazon still operates Amazon.cn, but only as a site that sells imported products to Chinese consumers. Amazon shut down its China marketplace where other merchants could sell in July 2019, conceding defeat to Chinese ecommerce monolith Alibaba Group Holdings Ltd., and No. 2 Chinese ecommerce company JD.com, which is partly owned by Walmart Inc. (No. 3 in the Top 1000).
(Amazon wasn’t the first U.S. ecommerce giant driven out of China by Alibaba: eBay Inc. pulled out in 2006 after being overtaken by Taobao.)
Amazon is the online retail leader in Western Europe
But in the world’s most developed economies, Amazon is a star. It accounted for 9.8% of Europe’s online sales in 2019, by Digital Commerce 360 estimates, when including both what it sold on its own behalf and sales by marketplace sellers on Amazon’s six European sites.
That makes Amazon easily the biggest online retailer in Europe. By comparison, the two top-rated Europe-based retailers—Otto Group of Germany (No. 1 in the Digital Commerce 360 Europe 500) and the U.K.’s Sainsbury’s (No. 2)—each accounted for about 1.2% of Europe’s online retail sales in 2019, one-eighth of Amazon’s total.
Amazon claims to operate the No. 1 ecommerce site in the United Kingdom, Germany, France, Italy and Spain and to attract 290 million unique visitors each month to its European sites.
Amazon launched its sixth European marketplace in Europe—Amazon.nl in the Netherlands—in March 2020 after six years of offering only Kindle readers and e-books on the site. The site offers more than 100 million products across 30 categories, Amazon said in announcing the launch.
Amazon also is an ecommerce leader in Japan, where it accounted for 22.9% of online sales in 2019, according to Digital Commerce 360 estimates. That makes it one of the country’s two dominant ecommerce players along with Japan-based Rakuten Ichiba.
Where does Amazon go next?
But Amazon’s prospects for significant growth in international online retail appear limited. It already operates an online marketplace in 14 of the 20 leading economies by gross domestic product—it also has marketplaces in the United Arab Emirates and Singapore, which are not among the 20 largest economies in the world. And the six countries that remain unpenetrated all pose daunting challenges. Let’s take a look at Amazon’s prospects in those six markets:
- China: Amazon has effectively given up on competing with such powerful domestic players as Alibaba’s Taobao and Tmall marketplaces, Walmart Inc. partner JD.com and fast-growing discounter Pinduoduo.
- Russia: The country’s nationalist, oligarch-dominated regime would pose challenges for a big foreign entrant like Amazon. Plus, increasing tensions between Russia and the U.S. could deter Amazon as well as other U.S. companies.
- Saudi Arabia: Effectively served by Amazon.ae, the marketplace Amazon created after its 2017 acquisition of Souq.com of Dubai in the United Arab Emirates.
- Switzerland: Swiss consumers can buy in their own languages from Amazon sites in Germany, France and Italy.
- South Korea: Local powerhouse Coupang has built a large fulfillment network and regularly delivers orders same-day or next-day, raising questions about how profitable Amazon could be against a company that has borrowed so heavily from its own playbook.
- Indonesia: Alibaba-owned Lazada dominates ecommerce in Indonesia and much of Southeast Asia. Does Amazon want to go head to head with Alibaba in an Asian market?
There are, of course, smaller economies where Amazon has yet to build a big shopping portal. Israel is one example, and Amazon has created a section of Amazon.com where Israeli retailers can sell to consumers in that country. But smaller markets like these are not going to move the needle much for a company the size of Amazon, which generated $280.52 billion in sales in 2019.
Brighter international prospects for Amazon Business
The picture is quite different for Amazon Business, the business-to-business online shopping service Amazon created in 2015. It is growing rapidly in the U.S. and now operates in nine of the 16 countries where Amazon has marketplaces. The other seven countries could well be targets for expansion.
What’s more, Amazon has created a version of its hugely successful Prime loyalty program for B2B sellers—Amazon Business Prime. Like the consumer version, Business Prime offers free shipping, but it also includes more business-specific features such as spend-analysis tools for buyers and consulting services for sellers.
Business Prime is only available in five countries—the U.S., United Kingdom, Japan, Germany and Canada. Expansion of that program to the other four countries where Amazon Business operates—India, France, Italy and Spain—seems a likely bet. And ultimately, Business Prime figures to be a feature of Amazon Business in all the countries where it operates.
What’s more, some analysts believe Amazon has only scratched the surface of what it can achieve in B2B ecommerce. While manufacturing tends to be concentrated in the hands of big companies, wholesaling and distribution typically is the realm of many small, regional players.
That presents a huge opportunity for a company like Amazon that knows how to use the internet to reach large numbers of customers and to deploy technology to squeeze out unnecessary costs.
Amazon Business, launched in 2015, already is moving quickly to seize that opportunity, and analysts see rapid growth ahead.
Applico Inc., a B2B marketplace and technology service and integration company, projects Amazon Business will reach $75 billion in sales by 2023, including products sold both by Amazon and outside sellers on the Amazon Marketplace. By 2021, Applico projects Amazon Business will be the largest U.S. distributor of industrial products.
RBC Capital Markets analyst Mark Mahaney says sales on Amazon Business are growing at 35% per year. Mahaney also estimates there is roughly $22 trillion worldwide in offline retail that remains to be penetrated by ecommerce companies but $59 trillion in offline B2B transactions.
That global opportunity has to be an inviting target for Amazon, particularly given the rapid success Amazon Business already has achieved in the U.S.
This story is taken from Digital Commerce 360’s 2020 Amazon Report. The full 88-page report can be downloaded now as a PDF for $499. Digital Commerce 360 Gold and Platinum members receive a complimentary copy of this report as a part of their membership.Favorite