Amazon retail growth puts focus on stores and grocery

What did Amazon earn in the third quarter?

Amazon’s online store net sales rose 2% year over year to $68.5 billion in the third quarter, according to Amazon’s Thursday press release.

Physical store net sales rose 2% to $5.7 billion, according to the company.

CEO Andy Jassy discussed Amazon Web Services and artificial intelligence (AI) investments at length on the analyst call. He said retail remained an important part of Amazon’s broader business.

Why does Jassy see more growth in stores?

Jassy said on the analyst call: “In stores, I think some folks are sleeping a bit on how much progress that business has made and what it’s become in the last few years.”

He added: “I’m not aware of another retail business approaching Amazon’s revenue size — hundreds of billions of dollars, with double-digit operating margins inclusive of ads — that’s growing at this pace.”

Jassy’s case rests on three measures:

• Jassy cited Amazon revenue in the hundreds of billions of dollars.
• He cited double-digit operating margins (profit as a share of revenue), inclusive of ads.
• He pointed to 2% growth in both store formats.

How are grocery and delivery changing the model?

Fresh groceries and everyday essentials grew three times faster than the rest of Amazon’s store business, according to Jassy.

Customers who bought perishables with same-day delivery bought nearly seven times more essential units than those who did not, Jassy said.

GlobalData Managing Director Neil Saunders said in emailed comments Thursday: “This is an important shift as it allows Amazon to win in a category that offers regularity and repetition. That, in turn, makes Amazon stickier, makes the fulfillment network more efficient, and improves perceptions around the value of Prime and other services.”

Saunders identifies three effects from regular purchasing:

• Regular purchasing improves customer retention.
• Amazon’s fulfillment network becomes more efficient.
• Perceived value improves for Prime and other services.

How did Prime Day affect the comparison?

Prime Day moved from Q3 to Q2 earlier this year, according to Amazon. The event shifted out of the quarter now being compared. Its retail sales and advertising revenue benefit moved with it.

That scheduling made Amazon’s Q3 year-over-year comparison tougher because the earlier comparison period retained Prime Day’s retail sales and advertising revenue benefit, according to Amazon.

What is Alexa changing for shoppers?

Alexa for Shopping gained capabilities this week, according to Amazon. Usage is growing among Amazon shoppers, according to the company. The expansion came ahead of the holidays.

Jassy told analysts: “U.S. customers using Alexa for Shopping are spending 50% more per order than those who don’t. Though we anticipate working with horizontal agents, we believe Alexa for Shopping is going to be the primary shopping agent customers use to shop Amazon.”

His forecast makes Alexa the primary agent customers use to shop on Amazon. He also expects Amazon to work with horizontal agents, according to Jassy.

Why did Amazon cut retail jobs?

Amazon cut hundreds of retail jobs earlier this month, according to the company. The cuts affected the retail division.

They stemmed from adjustments to parts of the store business.

The company was trying to create a structure that “will better enable us to deliver on our priorities,” a spokesperson said in a statement at the time.

Can Amazon keep gaining retail share?

Telsey Advisory Group analysts said in a Friday note that Amazon’s retail market share could continue to grow as long as the company uses its Prime member base.

They said: “Amazon’s ability to fuel key growth opportunities—grocery, pharmacy, logistics, ads, and AI/tech infrastructure—should make it more valuable.”

Telsey’s note identifies five growth opportunities:

• Grocery
• Pharmacy
• Logistics
• Ads
• AI/tech infrastructure

The next phase will test whether Amazon can convert Prime membership, faster grocery demand and higher Alexa order values into durable share gains, according to Telsey analysts’ forecast.