Amazon saw slower sales growth in its core online shopping business in the last quarter as cautious consumers traded down to cheaper options.
Driven by its cloud computing and advertising services divisions, Amazon saw its net sales increase 10% to $148bn during the second quarter to 30 June. Operating profit also doubled to $14.7bn.
However, sales in its online stores around the world increased by only 5% to $55.4bn. Amazon’s CFO, Brian Olsavsky, said that consumers “are continuing to be cautious with their spending” and are “looking for deals” following the prolonged cost of living crisis.
As a result, average selling prices (ASP) are declining while unit sales growth remains strong. He noted that an increase in shipping speeds is prompting growth in the purchasing of everyday essentials.
“What we’re seeing is really around ASP, and lower ASP in products selected by customers,” Olsavsky said. “They are continuing to be cautious with their spending, trading down to lower ASP products. And even on the higher-ticket items … there’s certainly a drop-off from probably more of a steady-state, thriving economy.”
Amazon has also faced heightened competition from budget retailers like Temu and Shein, which sell a wide variety of goods at bargain-basement prices direct from China. Reports last month suggested that the US giant is preparing to fight back with its own direct-from-China model to launch a new range of low-priced goods.
In its guidance for the current quarter, which began 1 July, Amazon said it expects net sales between $154.0bn and $158.5bn, which translates into a midpoint of $156.25bn, below the average estimate of $158.24m
Olsavsky noted the current quarter was proving especially challenging to predict due in part to consumers being distracted by major news events, elections, and the Olympics, among other factors. However, he said Amazon’s two-day discount sales event known as Prime Day in July was its “biggest ever,” without providing specifics.
NAM Implications:
- ‘Sales in its online stores around the world increased by only 5% to $55.4bn’ says it all in terms of Amazonian scale and ambitions.
- And consumers are “continuing to be cautious with their spending, trading down to lower ASP products” says it on behalf of suppliers and retailers everywhere.
- Keeping in mind any growth comes at the expense of rivals…
- …Amazon’s plan re ‘preparing to fight back with its own direct-from-China model…
- …to launch a new range of low-priced goods’…
- …means that online/offline retail is about to become hotter.
