Dive Brief:
- Compared to double-digit year-over-year increases in other retail-related revenue streams, Amazon’s Q1 retail sales growth was relatively subdued: Net sales at its online store rose 7% to $54.7 billion and at physical stores rose 6.3% to $5.2 billion.
- Meanwhile, third-party seller services rose 16% to $34.6 billion, advertising services rose 24% to $11.8 billion and subscriptions rose 11% to $10.7 billion.
- Including its AWS cloud services, the e-commerce giant’s net income skyrocketed 229% to $10.4 billion, according to its press release.
Dive Insight:
Retail is increasingly looking like a side gig for Amazon, supported by its more lucrative services.
Amazon’s non-retail operations in advertising, subscriptions and third-party services, along with AWS, generated $82.1 billion in net sales in the first quarter, far surpassing the $59.9 billion from its online and offline stores. Even taking out AWS, the retail-related services are catching up, generating $57.1 billion. Moreover, third-party sellers now move 61% of goods sold from its site. Amazon also generates sales from "other" services, including health care, licensing and distribution of video content, shipping and credit cards.
The revenue contribution from Amazon non-retail operations is set to only grow, with the launch of a new grocery delivery subscription and ads on Prime Video.
During a conference call with analysts on Tuesday, Chief Executive Officer Andy Jassy said that, while the company’s advertising strength in the period derived from sponsored products featured on its online store, the company is “encouraged” by early results from its recently launched Prime Video ads; Prime memberships free of those ads now cost more.
“The solid growth and profitability of AWS, as well as its media and advertising offerings, should continue to outperform the company average and support Retail,” Telsey Advisory Group analysts led by Joseph Feldman said in a Wednesday client note.
Not that Amazon is standing still when it comes to its retail operations. The company in its press release said that in March it “delivered to Prime members at its fastest speeds ever,” with nearly 60% of Prime orders delivered the same or next day in the 60 largest U.S. metro areas, and 75% arriving that quickly in London, Tokyo and Toronto.
The company has also expanded its product offering, adding Parade, Area, HBX Archives by Hypebeast, Clinique, Keys Soulcare by Alicia Keys, LOVED01 by John Legend, Oura Ring, Sonos speakers and National Women’s Soccer League-licensed goods. Amazon is also jumping on the resale bandwagon in Europe, where it’s partnering with luxury secondhand marketplace Hardly Ever Worn. And it held major spring sale events in Europe, Egypt, Saudi Arabia, the United Arab Emirates, Canada and the U.S.
Still, despite evidence that Amazon continues to attract sales based on its value proposition, the company faces some threat from newer marketplaces, according to GlobalData Managing Director Neil Saunders.
“The question of whether Amazon is losing customers to marketplaces offering even lower prices, such as Shein and Temu, is worth asking. And from our data, we believe this is happening at the margins,” he said in emailed comments. “However, the propositions are still sufficiently different to allow Amazon a defensive position. This may, however, change over time as other marketplaces start to broaden out their offer.”
Fortunately for Amazon, other retailers’ stumbles also help keep it in the retail game, especially at a time when customer loyalty is fairly thin, he said.
“There has, for example, been a small growth in the number of customers using Amazon for consumables and household products from Target: most likely because Target is increasingly botching the store experience,” he said. “In essence, the shopper is being more fluid in where they buy, and Amazon is generally well positioned to secure some gains.”
