Amazon is starting to raise the price of its Prime membership subscription scheme following two years of constant peak trading during the lockdowns of the Covid-19 pandemic and as its own costs rise.
The retail, technology and entertainment giant – ranked Elite in RXUK Top500 research – will this year raise the price of Prime membership in the US for the first time since 2018, as its costs rise and the scheme’s benefits expand.
The news came as Amazon reported net sales of $469.8bn (£346.52) in the year to December 31 2021. That’s 22% up on the previous year. Net income – a measure of profitability – rose 57% to $33.4bn (£24.9bn) from $21.3bn (£15.7bn) a year earlier.
In the fourth quarter alone it reported net sales of $137.4bn (£101.3bn), 9% up on the same time last year, while net income almost doubled (+98%) to $14.3bn (£10.5bn), from £7.2bn (£5.3bn) last time, as the valuation of its investment in Rivian Automotive rose by $11.8bn (£8.7bn).
Amazon chief executive Andy Jassy thanked staff who had overcome “another quarter of Covid-related challenges and delivered for customers” over the Christmas period.
He added: “Given the extraordinary growth we saw in 2020 when customers predominantly stayed home, and the fact that we’ve continued to grow on top of that in 2021, our retail teammates have effectively operated in peak mode for almost two years. It’s been a tremendous effort.”
Jassy said costs had risen over the holidays, as a result of staff shortages and inflationary pressures and in a way that continued into the first quarter of its current financial year because of the fast spread of the Omicron Covid-19 variant. The retail giant continues to invest in both expanding its fulfilment network and in Prime, expanding free same-day delivery at the same time as expanding the amount of content available to stream on Prime Video. The US price rise – of 15.4% from $12.99 (£9.58) to $14.99 (£11.06) a month, or from $119 (£87.77) to $139 (£102.52) a year (+16.8%) in the US, takes effect for new members from February 18 2022, and for existing members for their next renewal after March 25 2022.
Amazon’s fourth quarter was marked by its biggest ever Black Friday to Cyber Monday shopping weekend, in which third-party sellers on its marketplaces saw record sales. US Prime members took free delivery of more than six billion orders in 2021, while more than 200m Prime members around the world streamed television programmes and films.
Retail innovations
Amazon says its first clothes shop, Amazon Style, will open this year at The Americana at Brand, a Los Angeles shopping centre. Amazon Style, says Amazon, is built on personalisation and innovation, using machine learning algorithms to produce tailored recommendations in real time. That, it says, will make it easier for customers to buy. Items will be sent to the Amazon Style fitting room at the tap of a button in the Amazon app, so that shoppers can continue to shop without leaving the room.
Amazon’s Just Walk Out technology – pioneered in own Amazon Go shops in the US, before opening in Amazon Fresh shops in London – is now being used by third-party retailers including Sainsbury’s in the UK, in its Holborn Circus, London SmartShop Pick & Go shop. A new Starbucks Pickup with Amazon Go shop has opened in New York, enabling shoppers to order Starbucks drinks or food through the Starbucks App for collection from an Amazon Go shop.
Amazon devices
Amazon’s Alexa voice assistant is to go into space on Artemis 1, through a collaboration with Lockheed Martin and Cisco. Back on earth, new Alexa features have been launched in order to make the assistant more practice. Customers can now teach Alexa their preferences in areas such as food and sports that will influence recipe, restaurant and sports scores recommendations.
Amazon is also testing uses of its Amazon Sidewalk Bridge Pro by Ring, which promises professional levels of device connectivity for venues from universities and commercial centres through to wilderness areas. One pilot will focus on extending connectivity for internet of things devices at Arizona State University, while a second, with wildfire alert technology company Thingy, will provide connectivity for its air quality monitoring systems and information sharing.
Industry comment
Commenting on Amazon’s figures, Julian Skelly, head of retail EMEA at digital transformation consultancy Publicis Sapient, says: “Amazon’s Q4 challenge was to build enough people capacity to match their investments in fulfilment. They have risen to the challenge but had to take a significant hit on profits to do it. However, their bets will likely pay off. As the world emerges from the pandemic, consumers will continue to shop online and will favour brands that can get their goods to them easily and quickly. Amazon is even stronger in this today than back in 2021 and consumers will continue to turn to them for speed and convenience.
“Amazon’s Q4 growth confirms that they continue to capitalise on the increased consumer demand arising from the pandemic. Although Amazon’s revenue growth has slowed down since the height of the lockdown, it continues to climb at a good pace. Amazon has done well by investing heavily in hiring, while others have struggled to bring on additional capacity. New hires come at a price however, and Amazon have had to pay over the odds for new people – with sign-on bonus and higher wages, which puts them in a risky position for 2022 if consumer demand drops as the pandemic subsides and people go back to stores. If the online shopping habits that consumers have developed over the past two years change, Amazon could be stuck with a large cost base and declining revenue.
“That said, our research suggests that they have nothing to fear. Consumers report that they plan to continue online shopping – having enjoyed the convenience and flexibility of ecommerce. They don’t link it to the pandemic and see it more as a lifestyle choice. They report valuing fulfilment choices over price and brand loyalty, and this is the area where Amazon continues to invest.”
Skelly said that Amazon’s decision to raise rates in the US probably relied on customers’ willingness to get the most they can out of the subscription – and that rises in other regions were probably only a matter of time.
Ryan Cook, UK managing director of Criteo, says: “While the way in which Amazon continues to navigate a turbulent ecommerce environment has drawn much of the focus on recent earnings calls, Amazon’s services arm has been of equally high interest for some time. Growth here has highlighted key opportunities and likely challenges in a variety of sectors, in particular around the advertising and video streaming businesses. Now it could be time for the ecommerce giant to pivot in accordance with new market directions.” He points to advertising-based subscription models in areas such as video on demand.
“Advertising is a huge part of Amazon’s services business,” says Cook. “We’re now seeing something of a revolution among ‘traditional’ retailers like Asda, Tesco and Boots, who are now investing heavily in monetising advertising inventory across their domains. As these offerings rapidly mature, with more niche retailers bolstering the supply for advertisers, it will be interesting to see how Amazon responds and whether it sticks to an entirely closed ecosystem approach.”
