NEWS

Amazon’s online retail business has been revitalized by its day of work to free one-day Prime delivery

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    Amazon’s net sales from its online stores segment totaled over $35 billion in Q3 2019, growing 22% annually excluding foreign exchange rates, per its earnings release.Amazon Online Stores Net Sales
Amazon Online Stores Net Sales
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This is the segment’s best performance since Q3 2017, when it also grew 22% year-over-year (YoY). Amazon’s online stores sales growth decelerated in five of the eight quarters since Q3 2017, but this quarter’s surging growth could signal a return to acceleration and impressive growth for Amazon’s online retail business.Its burgeoning growth may be due to Amazon’s move to shift its free two-day shipping with Prime to just one-day. The transition was announced in April, and the uptick in online store sales this quarter and in Q2 2019 suggests that it’s already having an impact.

CEO Jeff Bezos noted that its customers “love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year” in the company’s release. Offering fast and free shipping should help Amazon win more sales over competitors, considering that 77% of US consumers reported that free shipping is key to getting them to make a purchase online and 35% said the same of next-day shipping, per a report from Walker Sands. The offering could also enable Amazon to pick up sales in situations where consumers need a product quickly that it wouldn’t have attracted before because it wasn’t fast enough.

A number of retailers are trying to match Amazon’s fast and free shipping offering to stay competitive, but it’s already proving costly for Amazon so not all merchants will be able to keep up.

Retailers like Walmart, Best Buy, and Target have ramped up their shipping offerings to avoid losing out to Amazon. Walmart now offers free next-day shipping with a $35 order minimum, Best Buy recently launched the feature for its selection while excluding some large items, like refrigerators, and Target provides same-day shipping with a Shipt membership or for a $9.99 fee. Shipping offerings like these help merchants avoid being eclipsed by Amazon on delivery, which may convince consumers to still consider shopping with them rather than defaulting to Amazon.

Amazon’s fulfillment costs have surged over the past two quarters, and while it can likely handle the costs of faster delivery, retailers with less funds may struggle to. Amazon’s fulfillment expenses totaled $360 million in Q2 2019 and $301 million in Q3, rising 12.5% annually and 11.9% annually, respectively, and it spent over $800 million on One Day specifically in Q2 alone, CFO Brian Olsavsky said on the company’s earnings call. Not all merchants can afford such expenses, but to keep up they should still try to find ways to offer fast shipping, whether through a subscription fee or just during key shopping periods like the holidays.

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