Retail was buzzing last week with Amazon’s Q2 results. The reason? Missed revenue expectations—a mismatch to the tune of -$2.12B. It’s the first miss since April 2019 and largest on record*. After, shares were down nearly 8%. Forecasting has been like reading a crystal ball as the pandemic has played out, with retailers as the wizard and the Street holding their magic as truth.
Investors are worried about slowing growth of the core business of Amazon: e-commerce. Prime Day, the mythical sales elixir, occurred during this period. To have softer sales than expected? Well, it’s unthinkable. Free Cash Flow has decreased by 62% and Amazon said it expects slower sales growth in Q3. Double (Triple?) Whammy.
Hidden behind the smoke and mirrors of soundbyte headlines was a strong quarter for Amazon. Net income rose to $7.8B (up nearly +50%), with growth in Brick & Mortar Sales (+8%), subscription services (+32%), AWS (+37%), 3P Sales (+38%), and other (read: advertising) revenue (+83%). Most of their growth is coming from higher margin segments.
It’s no doubt the core business is slowing, law of big numbers and all that… although there is something to be said for their stacked growth rate of 25 – 30%. For comparison, Kroger’s stacked was 15% and Amazon pre-pandemic was 21%. Anyways, Amazon has arguably been aware that this will happen:
Fun fact: 1 in 4 digital ad dollars will be spent on retail (eMarketer.com).
It shouldn’t be a surprise, that Andy Jassy (formerly AWS CEO), has taken over as head wizard (eh, CEO) versus one of Amazon’s Retail executives. Amazon makes up 40% of US online spending (more than the next 9 competitors combined), and Andy is more familiar with the areas that Amazon will use to spell growth moving forward: AWS, advertising / influencers, healthcare, Voice (Alexa), to name a few.
So, what spell does Amazon need to weave for the challenges they face? There are two themes: employees and space.
- 1 in 150 eligible US workers are employed by Amazon. They face 150% turnover, which means Amazon could run out of workers to hire in the United States. They’ve waved the wand to increase wage and benefits, which will exert significant pressure on their profits.
- Premium, available warehouses at Amazon’s scale is becoming scarce. They’ve doubled their facilities in the last two years and have increased capex and equipment leases by 74% in Q2. Quite simply, they’re running out facilities to support their supply chain.
The Top Stories of Last Week:
- Dollar General adds pOpshelf Store-in-a-Store concept– Dollar General is expanding and evolving its pOpshelf offering into a store-in-a-store format. The concept, which launched in October 2020 and has since expanded to 16 stores and now is being tested as a ‘store-in-a store’ at two DG Markets in the Nashville, Tenn. area. This whole concept is/was to reach a higher income shopper so modifying the strategy to a store-in-a-store is an interesting shift or evolution to watch. The entire store-in-a-store model in retail is quickly growing with any number of retailer partners.
- Netflix to open first physical store as it quickly expands retail offering. Netflix opened an online store in the US just a few weeks ago and now is planning for brick & mortar in Tokyo (2022), Netflix will “merge the virtual world of the internet with the real world”, recreate sets from their shows, and has other initial ideas.
- Last month Netflix announced they were beginning to sell merchandise via ecommerce and just last week they also announced a foray video games—both come in the face of slowing subscriber growth for their base business.
- Crypto and Retail, many rumors have been circulating about Amazon jumping into crypto by either accepting Bitcoin or launching their own Coin.
- A different retailer, Circle K, continued their journey into crypto by signing an exclusive partnership with Bitcoin Depot. Circle K, who already has 700+ bitcoin ATMs, will be gaining more soon in partnership with Bitcoin Depot. It will enable customers to exchange cash for thirty different cryptocurrencies.
- Newegg has become the first major online retailer to accept the Litecoin (LTC) cryptocurrency as a payment method, via the BitPay platform.
And, a few bonus articles:
- Twitter pilots the ‘buy button – Twitter launched a pilot in the U.S. aimed at testing the potential for e-commerce on its platform. The company is introducing a new “Shop Module” that offers brands, businesses and other retailers the ability to showcase their products to Twitter users directly on the business’ profile. The company earlier this year mentioned its plans to expand into e-commerce at Twitter’s Analyst Day presentation in February,
- U.S. grocery delivery market to get even more crowded – Getir, a Turkish company that promises to deliver grocers in 10 minutes, has raised nearly $1 billion in funding and plans to bring its service to at least three cities in the U.S., including New York.
- E-Commerce Inflation: Online Prices Up 2.3% Over Last Year, Adobe Reports – It used to be a truism you could depend on: Online prices did the same thing every year – decrease. Not anymore. Adobe has released it first report showing that the disruptions caused by the pandemic have reversed a long trend of declining e-commerce prices and replaced it with what most likely will be ongoing price increases.
- Coca-Cola auctions its first NFTs as interest in metaverse grows – Coca-Cola will auction its first nonfungible token (NFT) collectibles to commemorate International Friendship Day on July 30, per a press release. Proceeds from the auction, which begins on July 30 and closes on Aug. 2 on digital marketplace OpenSea, will go to Special Olympics International.
*At least, dating back to January 2013.
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