The battle has just begun: Amazon vs. stores

Holiday retail scorecard
Amazon's record-breaking holiday
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As the swell of holiday shopping subsides, online retail appears to have gained momentum this year.

But traditional retailers and e-tailers alike face challenges to dominate in 2016, including weather, prices and profitability, experts told CNBC.

On the online front, Amazon's Prime membership service had a "record-setting" holiday, a press release said Monday. Two-hundred million more items received free shipping this year, Amazon said, adding that last year's device sales also doubled.

The e-commerce giant wasn't the only company sending more, with shipping service deliveries reportedly snared by a last-minute spike in e-commerce.

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Amazon has focused on increasing Prime membership for several months, launching a promotion this summer called "Prime Day" which outsold Black Friday 2014. Prime membership can be a leading indicator of loyalty for six to 12 months, said Eric Sheridan, managing director of equity research at UBS, specializing in U.S. Internet and interactive entertainment.

"Prime has a tremendous loyalty impact," Sheridan said Monday on CNBC's "Squawk on the Street." "People go direct to Amazon — they spend more money once they are Prime customers. So we started to see earlier this year a re-acceleration of revenue growth for the e-commerce business at Amazon, and we think that was part of a flywheel."

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The early reports of Amazon's success comes as brick-and-mortar retailers are already mounting a small, but uneasy, shift to e-commerce.

"We think brick and mortar retail is really in transition right now," Matt Boss, equity research analyst at JPMorgan, told CNBC's "Squawk on the Street." "With Amazon ... you have online that is still only 10 to 15 percent of overall sales today. I think that number gets bigger."

Boss said he expects physical store locations to be cut by a third over the next five to 10 years.

Jeff Bezos, founder and CEO
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To be sure, competition between online and in-store shopping isn't the only factor in play as retailers look to spring.

With a lack of new fashion trends, consumers are looking more than ever for the best prices, Boss said. Shares of traditional retailers like Macy's, Kohl's, Sears and Nordstrom are down more than 20 percent this year, while fast-fashion retailers like Primark and discounters like TJX are only getting bigger, Boss added.

Unusual weather across the country also contributed to about half of the miss for most for most brick and mortar apparel retailers, Boss said. Exceptions include top brand names like Limited's Victoria's Secret, Nike and Under Armour, that are still driving both traffic and margins, according to Boss.

Shoppers leave the Macy's Herald Square store in New York City.
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Meanwhile, Amazon has its own transition to make, said Sheridan. Amazon had only nascent signs of profitability in its past few quarterly earnings reports.

"I think we're still in the early days of profitability at Amazon," Sheridan said. "That's something we still have to see float through the numbers over the next couple of quarters."

Disclosure: Coach and Ralph Lauren are investment banking clients of JPMorgan Chase. A UBS strategist, a member of their team or a household member owns a long common stock position at

— CNBC's Leslie Shaffer and Morgan Brennan contributed to this article.