For Retailers, Four Takeaways From Amazon's Latest Results

Where the competition is heading

Author: Andria Cheng

October 26, 2017

Amazon's latest earnings call yielded some interesting watchpoints for the industry. Here are four takeaways for retailers looking to stay ahead, or at least keep up with, the retail disruption engine.

1. Groceries Aren’t the Only Brick-and-Mortar Category Amazon Is Eyeing

Yes, Amazon’s purchase of 465-store Whole Foods is a key part of its physical store strategy, and the company has cut prices and added Amazon Lockers at some select Whole Foods locations. But Amazon is also planning to add more bookstores after opening its 12th location and is continuing to look at tapping into its Amazon Go grocery concept.

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“We’ll also be developing new store formats,” said Amazon Chief Financial Officer Brian Olsavsky on a conference call Thursday afternoon. “You’ll see more expansion from us.”

Thanks mostly to Whole Foods, while online store sales rose 22% to $26.4 billion, Amazon also broke out its physical store sales for a change: $1.28 billion.

2. Don’t Ignore Prime Day

Amazon recorded its biggest single-day sales ever on on "Prime Day" this year, surpassing even Black Fridays and Cyber Mondays of the past. Meanwhile, Prime Day spurred record sign-ups for new Prime memberships.

Subscription services, including Prime membership fees, jumped 59% in Q3 to $2.44 billion, a faster rate of growth than any other business segment, from Amazon Web Services to third-party seller services.

The Prime Day phenomenon will force other retailers to officially make July promotions a key part of their annual planning, and not just to promote back-to-school sales. 

3. Upping the delivery game is an imperative

Amazon’s 39% increase to $5.4 billion in worldwide shipping costs and 77% jump to a global employee count of 541,900 during the quarter is another warning sign for retailers that they need to seriously up their delivery and other fulfillment operations. Amazon recently unveiled the Amazon Key program to allow deliveries to be dropped inside consumers’ homes, following other moves including a partnership with Kohl’s to take customers’ returns.

The company is also investing in planes and transportation capacity, moves that  will translate to services like Sunday delivery and later cutoff times for guaranteed deliveries. What’s more, Amazon says it will be offering those services at “cost parity.”

On the fulfillment front, Amazon this holiday will create more than 120,000 seasonal jobs in its US fulfillment centers, sorting centers and customer service sites on top of using “Amazon robotics” to help with efficiency.

4. Retailers Outside the US Should be On Guard

International sales rose 29% in the quarter, representing 31% of total sales. 

Overseas markets are proving to be a healthy source of  Amazon's most valuable customers: Amazon Prime members. Amazon executives said that a big part of growth for the record Prime Day membership sign-up came from overseas.