Amazon sales hits $100 billion

With total revenue growth of 22 per cent during its final quarter, Amazon has emerged as one of the clear winners in the battle for holiday spend.

Even in its more mature home market, Amazon sales rose by 24 per cent, making it responsible for 22.6 per cent of all online retail spend in the US over the final quarter of the year.

These impressive figures are accompanied by another achievement: Amazon has now comfortably passed the $100 billion annual sales mark. Taking some $107 billion in its latest fiscal year confirms Amazon’s status as an online behemoth.

Fortunately for Amazon, this stellar topline performance has been joined by a continued improvement in profitability – something that has previously eluded the group. Across the year as a whole operating income was up by an impressive 1154 per cent, which helped turn a net loss of $241 million in the prior year into a net profit of $596 million this time around.

That noted, by comparative retail standards Amazon’s level of profitability is still painfully weak. For every dollar the company takes, it makes just 0.75 of a cent in profit. However, this is a conscious decision by a company that uses a large chunk of its revenues to invest back into generating future growth. Clearly this is a strategy that is working, and it is one that is accepted by the market. That it is, makes life much more challenging for traditional players like Walmart which are much more constrained in terms of the degree to which they can erode profitability in order to boost their own online operations.

Once again, one of the standout areas for Amazon has been Prime, where membership continues to grow strongly. In addition to the direct revenue it brings via the associated membership fees, Prime has also proved to be an important way of locking in customer loyalty. This is important because while Amazon is still a destination of choice for many online shoppers, it faces increasing levels of competition from both traditional retailers moving more aggressively into eCommerce and from new online startups. This is something underlined by the fact that despite its strong growth, Amazon’s share of all eCommerce sales in the US has fallen over the past five years.

Creating an ecosystem of services and benefits, which include free delivery and access to special discounts and promotions, keeps Amazon top of mind by making it an integrated part of consumers lives. Arguably it also gives the company a whole host of ways in which it can increase its share of wallet from consumers, including via the sale of digital content and services.

Despite its high share of online across many of the geographies in which it is established, Amazon’s actual share of many individual categories remains fairly low. This is especially so for areas such as grocery where, in share terms, Amazon remains an extremely small player. This demonstrates the extent to which Amazon has significant future headroom for growth, especially as it deepens its expertise and offer across key products.

The warning for other retailers is that even as it passes the $100 billion milestone, Amazon is still only getting started.   

  • Neil Saunders is CEO of retail analyst Conlumino.

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