Amazon tries to protect its ecommerce advantage in 2025

The broad strokes: Amazon had a solid year. Despite growing competition from the likes of Walmart and Temu, the retailer strengthened its grip on US ecommerce, established itself as an ad giant, and stayed relevant with price-conscious shoppers.

Amazon’s path to growth: Amazon accounted for 40.9% of total retail ecommerce sales this year, a slight increase from 2023, thanks to the stickiness of its Prime membership, a growing slate of sales events, and its investments in speedy delivery.

Prime membership is key to the retailer’s success.

• Nearly three-quarters of US households are Prime members, and we expect that percentage to increase slowly but steadily through 2028.
• To keep subscribers locked in, Amazon is steadily adding more benefits: Members received access to fuel savings in October, a free subscription to Grubhub+ in May, and add-on subscriptions for prescription medications and grocery delivery.
• Events like Prime Day are helping both fuel sign-ups and cement Amazon’s role as members’ retailer of choice.

Improving delivery speed is a priority. Fast delivery is a crucial component of Amazon’s value proposition and the primary selling point for a Prime membership.

There are other benefits to getting items to shoppers’ doors quickly: The faster customers get their orders, the more likely they are to turn to Amazon for everyday necessities like shampoo and cereal.

• “When customers purchase these types of items from us, they build bigger baskets, shop more frequently, and spend more on Amazon,” CFO Brian Olsavsky said on the company’s Q3 earnings call.
• Amazon’s everyday essentials business—which includes nonperishable groceries along with beauty, health, and personal care products—is growing 50% faster than the rest of its retail business, retail CEO Doug Herrington said at an all-hands meeting, largely because more than half of those essentials are now being delivered same- or next-day.
• As a result, Amazon’s ecommerce share of the health and personal care and the food and beverage categories is growing.

Amazon is wooing shoppers with lower prices and a steady stream of sales.

• The retailer held at least 10 sales events this year—from sitewide events like its Big Spring Sale and Prime Day to vertical-specific sales like Amazon Gaming Week and the Amazon Book Sale.
• Those events have helped establish Amazon as a destination for year-round deals and recruit new Prime members.
• While ecommerce sales are growing, unit sales outpaced net sales growth in the previous two quarters—a sign that Amazon’s efforts to offer shoppers lower prices are resonating.

More than a retail giant: Amazon is now an advertising and media juggernaut, bolstered by the strength of its retail business and several heavy-duty investments into sports.

• Adding an ad-supported tier to Prime Video and investments in NFL and NBA coverage are helping the company attract more spending from brands that don’t sell on its platform, transforming it into a major media player capable of challenging traditional networks.
• Amazon is also the dominant retail media network by a considerable margin: It accounted for 76.7% of retail media digital ad spending in 2024 as merchants grappling with economic uncertainty tried to get in front of the retailer’s engaged customer base.
• Amazon’s ad revenues will grow 19.4% in 2025 to $47.52 billion, per our forecast—an acceleration from this year’s already strong performance.

The headwinds: For all its successes, Amazon also faces its share of challenges.

Antitrust is a real concern. The retailer faces an existential threat in the form of an FTC antitrust suit, which could force the company to make significant operational changes that would eliminate its price advantage over other US marketplaces and limit the amount of money it can extract from sellers in the form of fees and merchant services.

It could also be forced to break itself up, much as the DOJ is now pushing Google to do—although that could take years, and it’s doubtful that Lina Khan’s successor, Andrew Ferguson, would go after the company as aggressively.

Ultra-cheap ecommerce marketplaces threaten Amazon’s dominance. In their relatively short time in the US, Temu and Shein have upended the retail industry and challenged Amazon’s grip on ecommerce. While Amazon maintains a considerable edge in terms of size, scale, and delivery speeds, it can no longer claim to be the retailer with the lowest prices—a disadvantage that the retailer tried to rectify with the recent launch of its low-cost Haul marketplace.

At the same time, many Amazon merchants are being lured to sell on Temu and fellow ecommerce newcomer TikTok Shop with the promise of lower fees and other perks like platform-funded discounts and the ability for sellers to use their own fulfillment services.

• Temu is wooing Amazon’s larger sellers, those with monthly sales of at least $300,000, by lifting fees and commissions if they price items 15% lower on its platform.
• While many sellers see Temu and TikTok Shop as additive to their businesses rather than a replacement for Amazon, their rise could limit the latter’s ability to extract more revenues from merchants, which is a crucial source of profits.

Looking ahead: Amazon is in a strong position heading into 2025. Its investments in fast delivery are helping boost order frequency and value, keeping shoppers tied to its Prime membership. At the same time, its media ambitions are turning its ad business into a force to be reckoned with.

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