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Amazon’s Figures Aren’t a Concern – Unless You Become Complacent
Amazon’s latest quarterly update has disappointed many, as its growth slows slightly. While the online giant shared ‘better than expected’ sales for its second quarter, investors were not so sure.
Net sales for Amazon rose 27 percent YoY to $113.1 billion, which was within the estimated range of $110-$115 billion. But investors and analysts were looking for $119.3 billion. Revenue in the US rose by 22 percent from last year, which represents 60 percent of total sales. International revenues, which represent 27 percent of total sales, grew by 36 percent YoY.
This isn’t a result to be sneezed at, but as e-commerce popularity levels out, this growth isn’t as exciting to enticing as many would have wanted. For comparison, Amazon reported a 40 percent increase in its second quarter last year. What’s more, this year’s update missed the analyst growth projection, which was $119.3 billion.
So what caused the dip? Let’s start with the obvious – the pandemic isn’t driving as many people online as it did last year. When the pandemic hit in March 2020, the need for e-commerce was apparent. With shoppers turning online in droves, retailers like Amazon reported enormous increases in profits and revenue. However, as the world opens back up and traditional retail channels return to ‘normal’, it’s expected that online sales will level out again.
Does this mean online is dead? Hardly. Amazon’s figures can only back this statement up. Reporting more than $113 billion in revenue can only emphasise that e-com is still an essential tool for shoppers worldwide. However, as consumers return to their everyday lives once again, the factors that drove them to shop online exclusively have decreased. Shoppers are not spending every waking moment inside anymore (minus certain states in Australia), thus their boredom (or need for gym equipment) doesn’t lead to impulse purchases to the extent it reached last year.
But we need to specify something here. Just because online spending is levelling out globally, it does not mean that it is decreasing in popularity. Nor does this mean that the bubble has burst. What it does highlight, however, is that retailers need to constantly make their experience as enjoyable as possible to avoid becoming complacent and falling behind.
Power Retail reported that May’s online sales were down YoY, but this figure proved to be a blip rather than a sign of trouble, as June online sales grew by 14 percent. What’s more, we’re predicting July online sales to grow 10.58 percent YoY, forecast for $4.39 billion. At the same time, Google Ad Spend is up almost 30 percent YoY, and the ACR is at 3.4 percent.
While analysts are disappointed in Amazon’s recent figures, it highlights something very important: online retailers should not become complacent in a post-pandemic landscape. This is especially apparent with the increasing number of marketplaces that are popping up. In May this year, we highlighted the increase of marketplace memberships, and while Prime members take the lead among Aussie consumers (26 percent), Club Catch (15 percent), eBay Plus (13 percent) and Kogan First (nine percent) members are going strong. In fact, new research from Power Retail suggests that Google search is down, and marketplace search is up. In May this year, marketplace searches were 16 percent, and by mid-July, it was up to 22 percent.
“On the product side, Amazon is now entering an era of heightened competition in which many more retailers have expanded their online and multichannel capabilities,” said Neil Saunders, the Managing Director of GlobalData. “While this does not completely undermine the convenience delivered by Amazon’s superior logistics capability, it signals the start of a more concerned effort by traditional retailers to fight back in a more concerted way.”
As marketplaces become an increasingly popular and trusted option for shoppers, retailers like Amazon that have the biggest share of the pie need to make sure they’re keeping their customers happy. This was exacerbated by last week’s fine given by Luxembourg National Commission for Data Protection.
Last week, Amazon was fined $1.2 billion for violations of data protection. The regulators have accused the retailer of accessing data from sellers on the platform, to gain an ‘unfair advantage’ in the marketplace. Amazon disputes this, saying that services like Alexa help create a better customer experience – the retailer is planning an appeal. “There has been no data breach, and no customer data has been exposed to any third party,” said a representative of Amazon. “These facts are undisputed. We strongly disagree with the CNPD’s ruling.”
This, combined with an increasing effort by other retailers to outdo the biggest names in the game, just goes to show how important it is to stay agile in uncertain times.
Trust is one of the most important factors for retaining customers, in conjunction with an excellent shopping experience. If a retailer is becoming complacent with its offers, ethics and overall experience, shoppers may turn somewhere else. This doesn’t mean the bubble is bursting, it just means it’s growing somewhere that investors may not be looking.