E-commerce continues to grow rapidly. 3 Retail stocks are the biggest winners.

Analyst Christopher Horvers expects this to benefit Amazon.com and Walmart the most because they are the biggest e-commerce players in the U.S., although he sees Costco as an emerging winner. Other analysts have a similar opinion.

A J.P. Morgan analyst estimates that Amazon, which accounts for about 45% of domestic e-commerce sales after eight straight quarters of market share gains of more than a percentage point, will overtake Walmart to become the nation’s largest retailer. It predicts Amazon will increase its share of U.S. e-commerce by 0.73 percentage points this year, helped by its wide product selection, speed of shipping and competitive pricing.

That said, investors don’t have to feel sorry for Walmart. Online shopping accounts for 13% of grocery sales and should continue to grow, Horvers estimates. He says that while Amazon is improving delivery speeds, Walmart already controls more than 20% of the category.

While there are limits to how much this can grow – delivering fresh milk and getting people willing to squeeze their own products from it is always going to be difficult – Horvers notes that Walmart only accounts for 4% of online sales of general merchandise. For comparison, for Amazon the figure is around 18%. This means it represents a great opportunity for Walmart to grow, he says.

“The company continues to invest in last-mile delivery, curbside delivery and Walmart+, and its fulfillment and advertising services herald accelerated share growth and margin expansion,” he wrote in a note on Monday.

These improvements support Walmart’s double-digit earnings per share growth. Barron’s is also bullish. This week at its annual shareholder meeting, held after revealing strong first-quarter fiscal results, the company struck an optimistic tone.

Many analysts are similarly bullish on Walmart, making similar comments to Raymond James analyst Bobby Griffin. After the annual meeting, he praised the company’s ability to sell through a variety of channels, from traditional brick-and-mortar sales to in-store pickup and pure e-commerce, emphasizing that management expects the e-commerce division to become profitable in the next few years.

Horvers warns that other retailers could suffer collateral damage. “With Amazon leaning heavily on sharing its supplies portfolio to help fulfill orders faster and Walmart selling general merchandise online, this is shaping up to be a fierce battle,” he wrote. Other competitors could benefit, he says, arguing that Target may be most at risk in the near term given its product mix and weaker consumer spending this year.

The warning doesn’t apply to everyone: Costco looks likely to gain online, too, he says. Although Costco’s business model relies on a limited number of products in brick-and-mortar stores, digital sales give it the ability to offer more products without jeopardizing its successful brick-and-mortar business.

Costco’s e-commerce growth, which accelerated to 15.4% in May from 14.8% in April, was the highlight of last month’s sales update. Since then, Costco shares have risen more than 83%. Barron’s recommended them in late 2022.

“Early digital innovation and convenience initiatives, supported by e-commerce growth of +21% in the third quarter, are likely to be the company’s next growth area,” TD Cowen analyst Oliver Chen wrote about Costco last week.

Ultimately, it’s not surprising that e-commerce will continue to take up a larger share of the overall shopping pie. It makes sense that the biggest winners will be large players who can more easily shoulder the burden of last-mile delivery costs, application maintenance, generative AI, and attracting large networks of third-party providers.

However, with Amazon and Walmart’s year-to-date price increases of around 22% and 27%, it’s clear that their successes can continue to move the needle. Race leaders can always gain a greater advantage.

Write to Teresa Rivas at [email protected]