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The holiday season treated Amazon.com very well

Both online and B&M retail sales plunged over the holiday season.  Layoffs abounded and there was no definite sign of an end in sight.  However, amid all these financial woes, a few lone stars did brighten the picture for the retail market.

One of the brightest stars was online retailer Amazon, who continued to post strong growth.  It made good on its claims of a seemingly implausible "best ever" holiday season when it posted its quarterly earnings this Thursday. 

Amazon posted a $225M USD profit, a growth of over 9 percent from the same quarter a year before.  Revenue climbed a whopping 18 percent to $6.70B USD.  The revenue handsomely surpassed analyst predictions which called for a more paltry $6.44B USD.  Amazon's electronics division was one of the greatest successes, growing to $2.89B USD, up 31 percent from the previous year.

Jeff Bezos, founder and chief executive of Amazon, states, "We remain relentlessly focused on serving customers with low prices, great selection and free shipping offers, including Amazon Prime."

Mr. Bezos cited the strong demand for Amazon's eBook reader Kindle as one reason why Amazon profits rose when overall the online community sunk.  On February 9, 2009 Amazon will introduce a new version of the best-selling gadget at a New York news conference.

Innovative products aren't the most important factor in Amazon's success believe some analysts.  They say it benefits from customers with reduced budgets looking for bargains, with Amazon's prices often being lower than retail stores.  Describes Mark Mahaney, an analyst at Citigroup, "Amazon may be enjoying a Wal-Mart effect, with people trading down to Amazon to get better prices over the holiday.  Amazon must have dramatically taken market share (from other retailers)."

The lone trouble sign for Amazon was its operating margin, a measure of real earnings left after expenses such as employee wages, discount costs, and other operating costs.  Amazon saw this margin sink from 4.79 percent the year before to 4.09 percent.  This was partly due to heavy discounting.  While it’s good that this raised sales, it’s a bit of a concern for Amazon when it looks at its bottom line. 

Amazon also had the misfortune of losing a key suit which allowed the state of New York to charge tax on its sales and possibly destroying the previous legal precedent of nexus protections.  As more states adopt such provisions, Amazon may see its revenue after taxes take an even bigger hit.

Many challenges await this year for Amazon, however, it certainly seems better prepared to handle them than most retailers given its strong performance over the holiday season.



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RE: Prime
By TomZ on 1/30/2009 11:47:28 AM , Rating: 2
I would guess I pay a shipping fee for <5% of my online purchases - including those I make at Amazon. Even when I do pay for shipping on something, it's like $5 typically.

So for me, I never understood the value proposition with Amazon Prime. Basically you're paying $79/year for nothing.


RE: Prime
By fearrun on 1/31/2009 12:09:42 AM , Rating: 2
I used a similar approximation for the minimal shipping cost, which came out to a little over a dozen shipments a year to break even with the cost of Amazon Prime.

Though my primary reason for joining was the upgrade to two day shipping. UPS seems to be the primary method for shipping lately. I was greatly disappointed when Newegg.com had switched to an exclusive deal with UPS.

UPS service to my home is abysmal. While observing online tracking I have seen many of my packages sit at the nearest distribution facility for days, if it is not time for delivery. UPS makes absolutely no effort to deliver before the due date. I am also literally, on most days, the last stop on the shipping route. Some of my deliveries have arrived well after 7PM.

Fed-Ex has always delivered shipments to me ASAP, sometimes even a day or two early.

So I see the real benefit being the upgrade in reduced shipping time, especially with the inexpensive $3.99 per item for next day shipping. It works out really well for those large or heavy items. Most other online retailers the cost to go from free shipping to a fixed amount of time becomes prohibitively expensive.


RE: Prime
By Oregonian2 on 1/31/2009 2:56:20 AM , Rating: 2
Christmas before last I bought a TV wall mount for a new 58" plasma we got then (old TV went to TV heaven just at the right time). Need the mount (last minute decision as to what I needed) pronto (2-day shipping). The mount is something like 50~60 pounds and Amazon's price was way better than anywhere else. Two day shipping was almost exactly the same price as Prime. So "Prime" was free for a year. It can happen.


"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)

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