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Amazon’s Rising Shipping Costs Eat Into Profits

It turns out that one-day shipping is an expensive endeavor. Amazon reported worse-than-expected profits in its latest quarter, thanks in part to an aggressive effort to slash delivery times down to one day for items ordered on its site.

The e-commerce giant said on Thursday that profits during its second quarter rose 3.6% to $2.6 billion from the same period a year ago. That equates to $5.22 per share, which fell far short of the $5.57 per share that Wall Street analysts had anticipated.

Amazon’s shipping costs surged by 36% to over $8 billion in the last quarter. That is a sharp uptick when compared with the previous three quarters, when shipping costs had risen by around 20%. Amazon has stepped up its investment in its shipping capabilities after promising in April that it would make one-day shipping the new normal for members of Amazon Prime, rather than the two-day shipping that it has long offered.

The company said that it is making progress on the initiative and that free one-day shipping is now available to Prime members on more than 10 million items. “Customers are responding to Prime’s move to one-day delivery—we’ve received a lot of positive feedback and seen accelerating sales growth,” said Amazon founder and CEO Jeff Bezos in a statement.

Bezos has made an Amazon Prime membership, which carries a price tag of $119 a year, a staple in over 100 million households across the country. A big part of the draw is free shipping on millions of items. Amazon has sought to stay ahead of the curve here as retailers like Walmart and Target pile on with free shipping offers of their own, which typically require a minimum order size but don’t charge an annual fee.

It’s also a play to satisfy its most impatient customers. Amazon noted on a call with analysts and investors on Thursday that it hopes one-day shipping will cut down on the number of customers who end up leaving Amazon and buying an item elsewhere because it isn’t available for delivery fast enough.

Amazon also saw a rise in marketing costs during the quarter, as well as an uptick in compensation costs as it continues to grow its workforce. Overall costs rose 21% in the quarter.

Sales increased 20% to $63.4 billion, topping analyst estimates of $62.5 billion. However, investors seemed to focus on the disappointing bottom line. Shares of Amazon slid 2% in after-hours trading on Thursday.

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I am a staff writer at Forbes covering retail. I’m particularly interested in entrepreneurs who are finding success in a tough and changing landscape. I have been at Forbes since 2013, first on the markets and investing team and most recently on the billionaires team. In the course of my reporting, I have interviewed the father of Indian gambling, the first female billionaire to enter the space race and the immigrant founder of one of the nation’s most secretive financial upstarts. My work has also appeared in Money Magazine and CNNMoney.com. Tips or story ideas? Email me at ldebter@forbes.com.

 

Source: Amazon’s Rising Shipping Costs Eat Into Profits

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Walmart And Target Are A Step Ahead Of Amazon

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Traditional brick and mortar retailers Walmart and Target are a step ahead of Amazon in the delivery battleground: while Amazon is offering 1-day delivery Walmart and Target are already moving to same-day.

That’s according to retail equity analyst John Zolidis.

“It may be tempting to think that Amazon investing $800 million to move its Prime offer of 2-day shipping to 1-day delivery will put incremental pressure on large retailers,” he says.  “However, this move is not a surprise.  We spoke with Wal-Mart (WMT) CEO Doug McMillon about this in October last year. He told us that same-day delivery, not 1-day delivery, was going to be the real battleground.”

McMillon is right. As was discussed in a previous piece here something has changed in the retailing industry in recent years.

Instead of fading away into the archives of history, brick and mortar retailing has come back to complement and support on-line retailing. Shoppers are placing orders online and are picking up merchandise at neighborhood stores, saving time and avoiding shipping fees.

That’s especially the case for groceries, where speed of delivery is a crucial factor in maintaining freshness.

The merging of online retailing with traditional retailing has provided an advantage to retailers with extensive neighborhood store presence like Walmart and Target. “Both WMT and Target (TGT) are already at a huge advantage over AMZN in this respect — because both retailers already have product stored within a short driving distance of the vast majority of the U.S. population in their respective 1,000’s of stores,” notes Zolidis. “Further, both retailers are offering not just delivery (Target already has same-day delivery via Shipt) but various options for BOPIS (buy online pickup in store).

Amazon, Walmart, and Target Shares YTD

Amazon, Walmart, and Target Shares YTD

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Then there are pick up points to enhance convenience. “WMT now has pickup towers in-store and are installing these across the chain, and it has established drive-through pick-up grocery lanes and is continuing to add these at a rapid pace,” adds Zolidis.  “Target is offering similar services and installing dedicated counters for customers to more conveniently grab items on the way home from work or after picking up kids from school. Target will also bring pre-ordered items out to your car in the parking lot.”

The strategy has been paying off. The two retailers have reported a rebound in both online sales and retail sales in recent quarters.

Simply put, Walmart and Target have changed the game in the retailing industry. And they have brought Amazon back into the world of the neighborhood store it once sought to eliminate by acquiring traditional retailers like Whole Foods — and by planning to open more grocery stores around the country to cater to markets not served by Whole Foods, as recently announced.

That’s why Zolidis thinks that investors would be making a mistake selling Walmarts and Target’s shares at this point.

“In our opinion,” he concludes, “it would be a mistake to sell large retailers on this announcement (WMT & TGT) as they have anticipated this for some time and are already rolling-out corresponding services.”

My recent book The Ten Golden Rules Of Leadership is published  by AMACOM, and can be found here. 

I’m Professor and Chair of the Department of Economics at LIU Post in New York. I also teach at Columbia University.

Source: Walmart And Target Are A Step Ahead Of Amazon

Amazon Shares Drop After Q3 Sales Fall Short And Holiday Outlook Disappoints – Andria Cheng

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Amazon.com AMZN +7.24%, facing growing competition on all fronts led by Walmart, reported disappointing third-quarter sales, sending its shares lower in after-hours trading. Sales in the quarter ended Sept. 30 rose 29% to $56.6 billion, compared with the consensus Wall Street estimate of sales rising above $57 billion. Sales would have risen 30% without the negative impact of a stronger dollar that hurt translated overseas sales by $260 million……

Read more: https://www.forbes.com/sites/andriacheng/2018/10/25/amazon-shares-drop-after-q3-sales-fall-short-and-holiday-outlook-may-disappoint/#202775e83048

 

 

 

 

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