If you were so inclined, you could order a bag of chips, a gallon of orange juice, and an umbrella-equipped lawn chair from Amazon Prime Now, and have it delivered to your door within the hour. An inflatable orca whale can arrive within a day. Every studio album by Tom Waits can be yours in the time it takes to boil some tea.
It’s easy to understand why Amazon is considered the most transformative company in U.S. retail. For years, its rise has been heralded as the end of brick and mortar stores and shopping as we know it. The demise of Borders serves as evidence, as do the fading fortunes of Best Buy and Barnes & Noble. Small businesses that were struggling against "big box stores" are having an even harder time now.
But according to a recent report by economists at the University of Chicago, a non-virtual retail innovation has had a bigger influence in the market. In a working paper for the National Bureau of Economic Research, UC professors Ali Hortaçsu and Chad Syverson argue that Amazon’s influence pales in comparison with warehouse stores, among which Costco is the category leader. As they put it, there’s “evidence that warehouse clubs have had to this point a greater effect on retail than e-commerce has.”
The report pulls together retail trends spanning more than two decades, including Census data going back to 1992. Given that Amazon was founded two years after that, some caveats are required.
For example, Amazon's segment of the retail industry grew by 894 percent between 1992 and 2013, according to census data. But for the purposes of the study, that segment also included catalog sales. Without the LL Beans, Avons, and Lands Ends of the world, the number would have been lower.
In this time frame, warehouse clubs were already in full swing, and their share of the retail market grew by 950 percent.
Using more recent figures, researchers also note that Amazon’s U.S. sales grew by about $38 billion between 2000 and 2013. In that time, warehouse stores more than doubled that figure, including $50 billion from Costco and $32 billion from Sam’s Club.
While this is instructional, the retail industry moves fast, and the long view taken by researchers may present a skewed take on the industry’s here and now. Take Amazon’s explosive year-over-year growth. As the below graph demonstrates, the yearly growth rates of Amazon and Costco aren't in the same ballparks.
These growth rates are the reason Amazon went from being ranked 25th among U.S. retailers in 2008, to ninth place this year. Costco is ranked third, not far from its rank seven years ago. Its annual U.S. sales have reached nearly $80 billion, to Amazon’s almost $50 billion. Whether Amazon can maintain its breakneck ascent is a big question for investors, and a city in which it occupies nearly a quarter of the premium office space.
In gauging which company has been most transformative, there’s also no disputing Amazon has changed the game in ways Costco has not. It is pushing nearly every retailer worth its salt to invest serious resources into online sales operations. This includes Walmart, the quintessential big box store, and upscale retailers like Nordstrom. Further, the company has moved into grocery delivery in an aggressive way, pushing Safeway and other competitors to develop their own services. Costco has refrained. The closest it's come is not booting employees of the Instacart grocery delivery service – which sells their products at mark-up – out of their stores.
As Washington Post retail reporter Sarah Halzack recently noted, Commerce Department data shows e-commerce only represents about 7 percent of total U.S. retail sales. Most would argue that Amazon has a while before it touches the top three of retail: Costco, Kroger, and Walmart. Others might do the equivalent of pointing to the scoreboard – Amazon officially became the country's most valued company by market capitalization this past July.