Amazon Results: More Evidence that Retailers Can’t Rest Easy

The Achilles heel that wasn't

Author: Andria Cheng

April 27, 2017

Amazon’s relentless rise has made it a source of fear and a topic of conversation in retail boardrooms. Based on the results Amazon reported on Thursday, those retail conversations are only going to grow more pressing.

The online retail giant reported a better-than-expected 23% jump in sales, thanks to the 24% gain in North America, nearly 60% of Amazon’s total sales, and a 16% increase in international markets and a 43% surge in Amazon Web Services cloud-computing unit.

company data

Amazon.com

Sales data broken out by region, segment and category

By themselves, the gains are impressive, but it’s the fact that sales moved sharply higher in tandem with strong profit growth that should grab retailers’ attention.

For years, Amazon was criticized for boosting sales at the cost of profit, potentially a long-term vulnerability that could threaten its spending flow. It has proved skeptics wrong. Amazon on Thursday posted its eighth straight quarter of profit, as a 47% surge in AWS’s operating profit helps offset loss overseas, where Amazon has expanded and provided more services in countries from India to Mexico. Free cash flow, one of CEO Jeff Bezos’s favorite financial measures, rose 52% to $10.2 billion for the trailing twelve months.

“Amazon is putting a lot of pressure on everyone to raise the game,” said Marc-Alexandre Risch, chief retail officer for beauty giant L’Oréal USA, at a WWD Retail 20/20 conference in late March. In fact, at the event, pretty much all of the speakers mentioned the disruptive force of Amazon.

It’s not just Amazon’s disruptive impact on their business that’s being felt. One speaker asked the roomful of about 200 mostly beauty and fashion industry attendees to raise their hands if their household has a Prime membership. All but a few put their hands up.

Amazon said Thursday that its retail subscription services, which include Prime membership fees, jumped 52%, excluding the impact of currency translations.

Amazon doesn’t disclose the size of its Prime membership, but Consumer Intelligence Research Partners, or CIRP, in a report earlier this week, estimated Amazon Prime, a key feature for keeping users engaged in its ecosystem, had 80 million US members as of March 31, up from 58 million a year earlier. CIRP estimated that Prime customers spend on average $1,300 a year, compared to about $700 for non-member customers.

Prime member growth “has been very strong,” Amazon’s Chief Financial Officer Brian Olsavsky said in the earnings call Thursday evening, without providing details. “Q4 strength has continued into Q1.”

It's not just online front Amazon is innovating. The retailer is planning to open six more bookstores, bringing the total to 12. Its Amazon Go grocery store, a test that allows consumers to grab items without a checkout, also has “a lot of potential,” Olsavsky said. He said Amazon also is looking at popup stores.

“It’s a way for us to connect with consumers and see where they are,” he said.

The company also continues to show that its disruptive force extends beyond books and electronics to categories like fashion. A Cowen & Co. study published in January showed that Amazon’s apparel purchase growth is well above its peers. For instance, between Q1 2014 and 4Q 2016, Amazon apparel sales rose an average of 27%, compared to declines at both Walmart and Target. 

Photo credit: Gerard Ferry/Alamy Stock Photo


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