Once a seemingly indomitable force in the 21st century retail arena, Amazon seems to be showing the world that its armor is not without a few chinks.
Last month, after revealing less than stellar earnings for the third quarter, the company’s stock took a 7 percent tumble. Founder Jeff Bezos was knocked from his lofty perch atop the world’s richest list, relinquishing the title momentarily to Microsoft legend Bill Gates.
While ebbs and flows in a volatile retail market are to be expected, there is evidence that Amazon’s once unshakable resonance with consumers is starting to falter. New data from digital retail analytics firm First Insight supports an assertion that the company could truly be “past its Prime.”
The frequency with which consumers are shopping on the site each month is steadily dropping, the report’s analysts said. In 2017, the vast majority (80 percent) of Amazon Prime members made purchases at least six times per month. In 2019, the number of consumers that copped to using their Prime accounts with that level of frequency was cut in half. In fact, this year, 40 percent of members say they shop the site just once or twice a month, if they order anything at all.
Amazon Prime membership on the whole is dropping year over year, according to First Insight. Membership reached its apex in 2018, with nearly 60 percent of Amazon shoppers paying for Prime. A year later, that robust contingent has dropped to a little over 55 percent.
The company’s advantage as a leader in search could also be slipping. While 66 percent of consumers said they price-shopped on Amazon.com for products before purchasing from other retailers in 2018, that number has dipped to 61 percent in 2019.
Omnichannel heavy-hitter Walmart has become perhaps the most painful thorn in Amazon’s side in the past few years. The all-American big-box store has bolstered its online business with competitive offers of fast, free shipping (and a cheaper annual membership, announced in September). Last month, the company announced that it would be rolling out a new price-matching tool, dubbed Competitive Price Adjustment (CPA), in advance of the holiday season, ensuring that Walmart shoppers receive the lowest price on a large swath of products chosen by the retailer.
Walmart’s targeted and aggressive efforts to knock Amazon off balance appear to have paid off. First Insight’s data shows that while over 50 percent of consumers said they preferred Amazon in 2019, that number has dropped more than 10 percentage points in 2019. This year, more than half (55 percent) of consumers said they preferred to shop at Walmart—both in store and online.
The heritage retailer’s advantage could stem from its broad-stroke omnichannel approach. In addition to becoming more digitally native, the company has augmented its operations with new distribution centers to ensure fast shipping and product availability, along with AI-powered tools in its physical stores. Though online shopping is undoubtedly vital to modern retail, many consumers still prefer to shop in person, and are looking to be impressed and delighted by their in-store experience.
In 2018, more than half (57 percent) of Walmart shoppers said they preferred to shop at the retailer’s physical locations. This year, that number has grown to a healthy majority of more than 60 percent.
While Amazon’s large and loyal consumer base is still shopping the platform for their household and lifestyle needs, 12 percent of shoppers said the number of purchases they made on the site decreased in 2019—4 percentage points less than in 2018. In 2017, only 6 percent of consumers said they had made fewer purchases that year than they had in the year prior.
Waning consumer interest is rapidly translating to diminishing dollars for Amazon. In its earnings report last month, executives said that net income decreased to $2.1 billion in the third quarter (or $4.23 per diluted share) this year, compared with net income of $2.9 billion (or $5.75 per diluted share) in third quarter 2018. The company’s operating income also decreased to $3.2 billion this past quarter, compared with operating income of $3.7 billion in third quarter 2018.
Amazon’s chief financial officer, Brian Olsavsky, intimated that the company’s ambitious promise of one-day shipping has presented a steeper learning curve than anticipated. “You know, we’re still learning here on the one-day costs, as we go about what the long-term cost structure will be,” he said on a call with analysts on Oct. 24.
“We know we have temporary costs in the short run,” he said, naming the forward deployment of inventory, new Amazon logistics and capacity operations, and staffing as operational areas that would require the company’s increased focus and resources over the coming months.
Founder and CEO Jeff Bezos turned an optimistic eye toward the upcoming holiday season, which yields surges in sales for retailers across the board. “We are ramping up to make our 25th holiday season the best ever for Prime customers, with millions of products available for free one-day delivery,” he said, insisting that customers have been “loving” the transition.
Billions of items have already been ordered using one-day delivery this year, he said, adding that while the switch has been a big investment, “it’s the right long-term decision for customers.”