- Amazon is in the process of speeding up its free Prime two-day delivery to free shipping in one day for eligible items for Prime members, Chief Financial Officer Brian T. Olsavsky announced on a conference call with analysts Thursday.
- The company is investing $800 million to get that done, which will happen this year. Olsavsky didn't say whether the transition to free one-day Prime shipping would be complete by the holidays.
- First quarter net sales for Amazon hit nearly $60 billion, with net income at $3.6 billion, up from $1.6 billion in the year-ago period, according to a company release. However, revenue growth slowed for the fourth straight quarter and sales at physical stores, the majority of which are Whole Foods locations, remained flat.
The shift to one-day delivery has already begun in some areas and with many items, with the focus on Amazon's North America operations. But it will eventually be a standard Prime offer worldwide on many items the way two-day shipping is now, according to Olsavsky.
"This is all about the core free two-day offer morphing into a free one-day offer," he said.
He also noted that Amazon already offers speedy delivery times including same-day and even within an hour or two in some areas. That likely means the e-commerce giant is ready to up its game at a time when it probably needs to, according to Jon Weber, who leads the retail practice at L.E.K. Consulting. "I’m not surprised by it — they’re already delivering to the consumer in one day and faster — so I think that gives them confidence," he told Retail Dive in an interview. "There was a time when free two-day shipping was a massive difference — that superiority historically, that gap from the competition, removes choice in the mind of the consumer. Well if that’s narrowing — that’s a potential risk to Amazon."
Analysts said that it was time for Amazon to once again differentiate its most appreciated Prime benefit because rivals like Target and Walmart have caught up to some extent. "The last mile race continues to heat up. Other retailers have matched 2-day shipping while others are leveraging store based distribution for click-and-collect or buy-online-pickup-in-store," Danny Silverman, chief marketing officer at Edge by Ascential, told Retail Dive in an email. "The latter offers next or same day delivery options. This is the landscape Amazon competes in so 2-day shipping is beginning to look 'slow.'"
Olsavsky dismissed any notion that Amazon has sweetened its shipping perk because Prime membership growth is slowing, noting that Amazon had more people sign up for the $119 membership in 2018 than any previous year, and that the company is pleased not only with growth but also engagement.
Despite record profits on the quarter, led by gains in cloud computing and advertising, Amazon's retail sales are slowing. Physical stores, which include more than 400 Whole Foods and ten Amazon Go locations, grew slightly from $4.26 billion in last year's Q1, to $4.3 billion.
Olsavsky noted these results didn't factor in online sales through Whole Foods, which are categorized under online retail sales. Factoring this in, physical store growth was closer to 6%, he said — the same growth rate the company saw last quarter. Whole Foods offers delivery in 75 markets and store pickup in 30.
Many expected Whole Foods' growth to be more robust under the e-tailer, which has introduced price cuts and integrated its Prime membership platform with the chain in an effort to broaden its appeal. That growth may still come, with Whole Foods rolling out another round of price cuts recently. Amazon is also looking beyond the specialty retailer to boost its fortunes in grocery, including the development of a new chain and accelerating private label releases.
"Amazon is losing share in food, mostly thanks to deficiencies at Whole Foods," Neil Saunders, managing director of GlobalData Retail, wrote in an email sent to Grocery Dive. "That said, it is clear to us that Amazon is redoubling its efforts by investing more in price, refurbishing stores, and launching new products such as Amazon meal kits in Whole Foods stores. These things will help to move the dial, even if only slowly."