An Amazon delivery person pulls a delivery cart full of packages during its annual Prime Day promotion in New York City on June 21, 2021.
Brendan McDermid | Reuters
Earlier this week, Walmart and Best Buy both lowered their second-quarter and full-year earnings outlook, setting off alarm bells in the retail sector that soaring inflation was impacting consumer spending.
Shares of other retailers, including Amazon, Target and Macy’s, all fell after Walmart’s announcement on fears that similar headwinds could be seen.
But Amazon executives suggested on Thursday that the e-commerce giant hasn’t seen the kinds of inflationary impacts that hurt other retailers. During a press call on Amazon’s second quarter results, Chief Financial Officer Brian Olsavsky was asked if inflation has changed the way consumers spend their money.
“We haven’t seen anything yet,” Olsavsky said. “We saw demand increase in the quarter and we had a very strong month of June.”
Amazon has made progress in bringing products back to stock and delivery speeds have largely returned to normal, Olsavsky said, after a period when its fulfillment and logistics operations were stressed by a surge in online orders. by a pandemic. He suggested that consumers noticed the improvement and, in turn, bought more stuff during the quarter.
Inflation-weary consumers showed no signs of cutting spending, but that wasn’t enough to restore growth to Amazon’s e-commerce business. Online sales fell 4% year-over-year as many shoppers returned to physical stores, leading to a broader slowdown in e-commerce activity from pandemic highs.
Amazon gave an optimistic view of the coming months. For the current quarter, Amazon said it expects sales to be between $125 billion and $130 billion, representing growth of 13% to 17%. Analysts forecast sales of $126.4 billion, according to Refinitiv. That, combined with better-than-expected revenue, drove the stock up more than 13% after hours.
Amazon has a particular advantage over its rival Walmart.
On Monday, the big-box retailer said the rising cost of groceries and gas was forcing consumers to tighten their belts, forcing them to spend more on basic necessities like food and less on essentials. areas such as electronics and clothing. This meant that the more expensive items were starting to pile up on the shelves. In turn, Walmart aggressively reduced junk items, hurting its profit margins.
Amazon is supported by a larger mix of middle- and upper-income consumers, while Walmart is “strongly driven” by lower-income consumers, who are more inflation-sensitive, said Andrew Lipsman, principal analyst at eMarketer.
“I think Walmart has a much, much tighter spread right now and will be more sensitive to those inflation impacts,” Lipsman said in an interview.
DA Davidson analyst Tom Forte agreed. “Amazon’s core consumer is more affluent than Walmart’s consumer, and that seems to allow them to outperform Walmart,” said Forte, who has a buy rating on Amazon stocks.
Amazon also has an integrated consumer base of over 200 million members ready to buy more. Members of Amazon’s Prime discount club tend to spend more and order more frequently than non-Prime members, market research firm finds Consumer Intelligence Research Partners.
So far, Amazon said Prime members don’t seem to be dropping their memberships to cut costs in the face of inflation.
“We continue to be pleased with the membership levels and retention of our Prime program,” Olsavsky said. “It was as good or better than we expected.”