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Amazon reports 15% sales growth – and continues focus on costs as profits fall 10%

A worker in an Amazon warehouse. Image courtesy of Amazon

Amazon today reports 15% sales growth in the third quarter of its financial year – although sales at its international business – which includes the UK – fell as a result of exchange rate fluctuations. Amazon continues to focus on managing costs following a quarter in which profits fell by about 10%.

The retail, technology and entertainment company – ranked Elite in RXUK Top500 research – says the response to its first Prime early access sale – held in mid-October – was “quite positive”, and points to customers buying more than 100mn items from small and medium-sized businesses during the event. The event fell in the fourth quarter of Amazon’s financial year, and the business is now predicting slower growth for the quarter.

Amazon chief executive Andy Jassy says: “In the past four months, employees across our consumer businesses have worked relentlessly to put together compelling Prime Member deal events with our eighth annual Prime Day and the brand new Prime Early Access Sale in early October. The customer response to both events was quite positive, and it’s clear that particularly during these uncertain economic times, customers appreciate Amazon’s continued focus on value and convenience.”

The update came as Amazon today reports net sales of $127.1bn (£110.2bn) in the third quarter of its financial year, to September 30 2022. That’s 15% up on the same time. Sales in its North America business rose by 20% to $78.8bn (£68.3bn) but international sales – the segment that includes the UK – fell by 5% to $27.7bn (£24bn), but were 12% ahead when foreign exchange fluctuations were excluded. AWS sales were 27% ahead at $20.5bn (£17.8bn), or 28% after foreign exchange changes. 

Net income – a measure of profitability – fell 9.4% to $2.9bn (£2.5bn) from $3.2bn (£2.8bn) a year ago– after a $1.1bn (£0.95bn) pre-tax gain in the value of its investment in electric vehicles business Rivian Automotive. 

Looking ahead

Looking ahead, the retailer now expects fourth quarter net sales to come in at between $140bn (£121bn) and $148bn (£128bn) – between 2% and 8% ahead of the same time last year. Operating income is expected to come in at between $0 and $4bn (£3.5bn) – compared to $3.5bn (£3bn) last time.

Jassy says the business is “encouraged by the steady progress we’re making on lowering costs in our stores fulfillment network, and have a set of initiatives that we’re methodically working through that we believe will yield a stronger cost structure for the business moving forward”. He adds: “There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets. What won’t change is our maniacal focus on the customer experience, and we feel confident that we’re ready to deliver a great experience for customers this holiday shopping season.”

Rising costs have been an issue for Amazon for at least a year. When it reported its third quarter figures last year, it said that supply chain problems and labour shortages were driving the rise. 

During this year’s third quarter, Amazon launched a dedicated site for Belgium, opened 12 new fulfilment centres around the world – including in Ireland – in order to increase the speed of delivery, and extended same-day Prime delivery to around 10 US cities to new partner brands and retailers including Superdry, GNC and PacSun. It also started legal action around fake reviews in markets including Italy and Spain and announced plans to spend more than €1bn to electrify and decarbonise its European transport network. 

Commenting on Amazon’s figures, Hugh Fletcher, global marketing director at Wunderman Thompson Commerce, says: “It is no surprise to see Amazon lose momentum amidst the cost-of-living crisis, waning consumer confidence and unpredictable economies. Amazon’s ecommerce revenue – which accounts for half of its total revenue – has continued to decline for the last two quarters; this could be why its unprecedented Prime Day bonanza hit digital shelves early to encourage spend over a prolonged period, suppress rising costs and ensure supply chains are prepared for the influx of orders.

“Yes, the holiday season will be expected to offer short-term reprieve for the marketplace, and intensive price competition will be expected across Black Friday and Cyber Monday as households look to find ways to cut back; calls from Jeff Bezos to “batten down the hatches” shows that even the ubiquitous Amazon is preparing for a rocky road. Yet if any business is best placed to thrive it’s Amazon with its unique combination of speedy delivery through Prime, physical Fresh stores and Echo devices that allow shoppers to add things to their wishlist with ease.

“Despite these results, online is expected to be an unsurprising winner this year as well, with over three quarters (76%) of shoppers saying their proportion of spend online will increase as they search for the best deals, range, speed and convenience that is offered by large-scale marketplaces such as Amazon, eBay and others. Looking beyond Q4, the entire retail industry should expect choppy waters, but it’ll be down to brands and retailers to find the perfect blend of unavoidable products and services, convenience at every step of shoppers’ journey and valuable deals that encourage long-term spending.

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