During the Covid pandemic, many consumers were forced to shop online, as opposed to doing it out of convenience.
But then something interesting happened. A lot of people realized how easy and convenient online shopping was, and so they decided to do a lot more of it.
These days, only 16.3% of total U.S. retail sales are made online, according to data from the Federal Reserve. Yet foot traffic is down in a lot of stores.
That still makes the case for physical retail. But will that change over time? Amazon CEO Andy Jassy seems to think so.
Jassy was recently quoted as saying that while 80% to 85% of retail sales stem from physical stores, “That equation is going to flip over time. And I think AI is going to only accelerate that.”
But while Jassy might think e-commerce domination is inevitable, his actions seem to say otherwise.
Amazon’s CEO predicts that in-person shopping will continue to wane, yet the company is making a surprising investment.
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Why e-commerce is gaining an edge
There are a few reasons why e-commerce is gaining on brick-and-mortar retail. For one thing, there’s the convenience factor. Online shopping not only allows consumers to buy things without leaving the house, but in many cases, opens the door to a wider range of inventory.
Secondly, there can be huge cost savings for retailers that shift away from stores and focus their resources on e-commerce.
Related: Walmart borrows a classic Sears (really) sales tactic
Maintaining inventory on a store-by-store basis can be both challenging and costly. Maintaining inventory in a warehouse with automation can be easier and more cost-efficient.
Plus, brick-and-mortar stores expose retailers to the risk of theft.
In 2024 alone, retailers lost an astounding $45 billion to theft, reports CapitalOne Shopping. And projections indicate that retail theft could cost companies more than $53 billion in 2027.
By favoring an e-commerce model and closing physical stores, retailers can reduce their risk – and potentially pass more savings along to consumers.
Amazon CEO’s prediction is contradictory
Jassy may have been quick to predict the impending demise of brick-and-mortar retail. At the same time, Jassy said the company is seeing a significant opportunity for growth in its physical stores.
And that’s not all — Amazon recently announced plans to expand same-day grocery delivery from 1,000 U.S. cities to 2,300 by the end of the year. That doesn’t sound like the sort of action a company would take if it truly believed brick-and-mortar retail was on its way out.
Related: Watchdog group warns Costco members to avoid popular product
Of course, it’s worth noting that physical retail represents a fairly small portion of Amazon’s business. During Q3, online sales rose 10% year over year to $67.4 billion, while physical store sales rose 7% to about $5.6 billion.
Still, Jassy’s statement may have been nothing more than a scare tactic, given that the company is clearly trying to worm its way into the physical grocery space.
The reality is that brick-and-mortar retail is not necessarily destined to die an ugly death. Retailers with strong brands that offer a positive in-store experience are likely to continue attracting customers, even as AI reshapes commerce as we know it.
Take Costco, for example. A big part of the shopping experience is the in-store treasure hunt. That’s something consumers aren’t going to rush to give up anytime soon.
That said, retailers offering a sub-par in-store experience may, in the coming years, be better served focusing on e-commerce if in-store sales numbers continue to shrink (ahem, Target).
But all told, the end of brick and mortar is hardly around the corner, and Jassy’s prediction should be taken with a hefty grain of salt.
Maurie Backman owns shares of Amazon.