That doesn’t mean Wal-Mart Stores Inc. — the company’s brick-and-mortar rival — isn’t racing to catch up.
Amazon’s fourth-quarter sales increased 22 percent to $43.7 billion, up from $35.7 billion a year earlier. That marked something of a weakening in the general trend, as sales for the full year rose 27 percent to $136 billion from $107 billion in 2015.
The Web giant — notorious for running at a loss — managed to operate in the black, earning $749 million in the fourth quarter and $2.37 billion for the year.
Still, investors were disappointed by sales over the holidays, which were lighter than expected, and pushed the stock down 4.3 percent to $803.50 in after-hours trading.
The company seems to be losing little of its competitive bite and is winning by giving its millions of Prime members more.
Jeff Bezos, chief executive officer, told investors that Amazon Prime’s customer obsession “kept them busy” in 2016.
“Prime members can now choose from over 50 million items with free two-day shipping — up 73 percent since 2015,” he said.
Bezos noted that “tens of millions” of new paid members joined the $99-a-year program in 2016.
Wal-Mart struggled to come up with an answer to Amazon, but is in the midst of a renewed push to up its web savvy.
This week, Wal-Mart scrapped it its two-day free shipping loyalty program called ShippingPass, which had been $49 a year. Instead, the retailer began offering free two-day shipping on any orders that are more than $35.
This was seen both as an admission the program wasn’t successful, and a hint at more changes to Wal-Mart’s digital offerings under the new leadership of Jet.com founder and e-commerce disruptor Marc Lore, who has been in the role of president and ceo of Wal-Mart U.S. e-commerce for four months. Wal-Mart acquired Jet.com for $3.3 billion in 2016. Lore also founded Quidsi, whose Diapers.com, Soap.com and Wag.com were acquired by Amazon.
“We’ve rolled out a new leadership team and organizational structure that’s highly customer-centric,” Lore said recently, noting that his focus was on “leveraging unique assets and network” to serve customers in ways that only Wal-Mart can. Lore said free two-day shipping was “table stakes,” and that ShippingPass was a way to test free shipping. Lore added that Wal-Mart is “moving at the speed of a start-up.”
But is that fast enough?
Forrester vice president and principal analyst Ted Schadler said the change was likely due to “poor uptake” of the ShoppingPass program, adding that Amazon Prime was about more than free shipping, in that members get access to perks such as TV, movies, and music.
Amazon reported that Prime members engaged with the Prime digital benefits “at a voracious rate,” more than doubling the number of video, music and reading activities compared with 2015. “Wal-Mart can’t effectively match that offer,” Schadler said.
He said that Amazon competes with Wal-Mart particularly in categories such as electronics, apparel, shoes, and home goods, where the category selection overlaps heavily, the convenience of Amazon ordering has a head-start on Wal-Mart and pricing is no longer a major differentiator.
“Amazon knows it’s future depends on loyalty and increasingly lifetime value of each customer. That’s why it focused so hard on customer satisfaction,” he said.
Trying to play to its strengths, Wal-Mart has been focusing on its “buy online, pick up in store” option.
“That’s hugely complex and expensive to implement, but it pays off in convenience, immediate fulfillment and consistency for its customers online and off-line,” Schadler said. “Omnichannel is Wal-Mart’s future; its challenge is in getting the most value out of its stores.”
Still, he pointed out that Amazon offers Prime shipping on 50 million stockkeeping units, which is up 70 percent compared to last year. Wal-Mart’s new two-day shipping has just two million.
“Amazon has been conditioning consumers to expect free shipping and was among the first to use free shipping to gain customer loyalty,” said Laura Behrens Wu, who is ceo of Shippo, a software company that helps e-commerce businesses integrate shipping with multiple carriers in the vein of Amazon’s shipping technology.
Wu said e-tailers hoping to compete with Amazon can use shipping to drive sales that are more than a certain order value — Wal-Mart’s approach — but “the key is to always pair free shipping offers with a specific call to action for the customer” to avoid eating into margins.
“Amazon has pinpointed that shipping was one of the most effective ways of gaining customer loyalty,” Wu said. “They’ve poured resources in technology, operations and infrastructure to set consumer expectations so high that most retailers can’t replicate it or compete with it without completely eating away at their margins.”