Commentary

Amazon Aspires To One-Day Shipping For Prime Members

After posting a record quarterly profit on reduced costs yesterday, Amazon indicated that it aims to speed up its two-day shipping benefit for Prime members by 24 hours. Sales were up 17% to $59.7 billion.

“We’re currently working on evolving our Prime free two-day shipping program to be a free one-day shipping program,” CFO Brian Olsavsky told analysts. “We’re able to do this because we spent 20-plus years expanding our fulfillment and logistics network, but this is still a big investment and a lot of work to do ahead of us,” he continued in remarks transcribed by Seeking Alpha.

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“In order to make the change, Amazon is expected to spend $800 million in the second quarter improving warehouses and delivery infrastructures, Olsavsky said. "The investment will cut into Amazon’s profit margins, and the company gave lower-than-expected earnings guidance for the period,”  CNBC’s Eugene Kim reports.

But how else to stay ahead of the Joneses and -- more to the point -- the Walmarts and Targets?

“Amazon.com Inc. just acknowledged -- and took a significant step toward fixing -- a nagging problem: The $119-a-year membership program that made it an e-commerce juggernaut was starting to look less like a good deal,” write Bloomberg’s Sarah Halzack and Shira Ovide for the Washington Post. “Sure, Amazon’s Prime membership has a wide range of goodies…,” they posit. “But the original lure of the program -- the thing that got millions of people shopping on Amazon almost as if on autopilot -- was two-day shipping on millions of items at no additional cost.”

Now, they report, “the brick-and-mortar giants have caught up and, in some ways, have even undercut Amazon.”

“The news dominated the earnings call, with analysts asking numerous questions, especially with Amazon having slowed fulfillment and shipping costs growth and posted record profits in recent quarters,” Andria Cheng writes for Forbes.

“‘What’s the big opportunity to invest in one-day?’ Morgan Stanley analyst Brian Nowak asked.

“Without being more specific, Olsavsky said one-day free shipping is not only about increased convenience; it also ‘will open up a lot of potential purchases.’ ‘We really think it’s going to be groundbreaking for Prime members,’ he said,” Cheng reports.

“While Amazon already offers one-day and two-hour shipping options to Prime members, the options are currently only available for certain products in certain locations, and sometimes there are additional costs. Olsavsky said that the new plans will expand the program to more products and more zip codes. Additionally, one-day shipping will become the default, not the exception,” Sophie Lewis writes for CBS News.

Overall, Amazon’s results “topped analyst forecasts for the first quarter, notching $3.6 billion in profit on almost $60 billion in sales. That compares with a $1.6 billion profit on $51 billion in sales a year earlier. Earnings per share were $7.09, well past forecasts for $4.70,” writes Karen Weise for the New York Times.

“Most of Amazon’s revenue still comes from sales on its website, but an outsize chunk of its profit is from other services, including cloud computing and advertising,” Weise continues.

“Last year, we joked that Amazon was a cloud giant with a gift shop. Looking at these [Amazon Web Services] figures, we were right,” reads the headline atop Thomas Claburn's piece for The Register, a British IT publication.

“AWS revenues, however, only, yes, only, grew 42%, which is less than the 48% rate it managed in the same quarter last year. That suggests a stall in growth, though it is the undisputed heavyweight champion of the public cloud market,” Claburn writes.

Some aspects of the ever-expanding enterprise are faring less robustly, however. 

“CEO Jeff Bezos is continuing to invest heavily in artificial intelligence, the smart home, and physical retail, bets that won’t pay off for quite some time,” Shannon Liao observes for The Verge.

Indeed, who knew bricks and mortar could be so challenging?

“As Amazon pushes further into physical retail with cashier-less Amazon Go stores and bookstores, it has yet to show much revenue growth. Its Whole Foods grocery chain, which it acquired in 2017, makes up the bulk of that category, where revenue rose 1% in the latest period. In April, Amazon implemented a third round of price cuts on grocery items, primarily on produce and meats, and said it would introduce more discounts to Amazon Prime members,” Yoree Koh writes  for the Wall Street Journal.

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