Amazon is continuing to play the market share game.
The company’s third-quarter report showed sharp sales gains, but profits that disappointed as spending to build on its massive infrastructure continued.
Amazon’s net profits rose to $252 million, or 52 cents a diluted share, from $79 million, or 17 cents, a year ago. Profits per share came in 26 cents below the 78 percent Wall Street expected and helped send the stock down 4.7 percent to around $780 in after-hours trading.
The ever-expanding e-commerce giant has been rapidly adding new services — from downloadable digital content to updates to its AI-powered assistant Alexa. But it’s also been building it shipping infrastructure as it seeks to control more of its distribution. Costs for shipping in the quarter rose 43 percent to $3.9 billion.
At the WWD CEO Summit this week, Daphne Carmeli, chief executive officer of “last mile” logistics firm Deliv, said that Amazon is starting to push the e-commerce industry to be quicker, making same-day delivery much more important.
“Today, 40 percent of the nation’s population is within 20 miles of an Amazon fulfillment center,” she said. “Five years ago that number was 5 percent.”
That’s a competitive threat for retailers, and although Amazon is getting much of its profit momentum from its web services business, it is also rapidly growing as a merchant.
Amazon’s total revenues for the quarter ended Sept. 30 increased 29 percent to $32.7 billion from $25.4 billion. The company’s product sales rose slightly slower than overall sales, gaining 21 percent to $22.3 billion.
In the apparel world, Amazon has been catching up to online and omnichannel retailers.
And Wall Street is starting to pay more attention to Amazon’s fashion business, bringing the category up on the company’s conference call digesting quarterly results.
Amazon’s chief financial officer, Brian Olsavsky, said that fashion and apparel are a large part of the company’s business.
“We continue to make it easier for brand manufacturers to come on board in that category…and we’re happy with the traction we’re seeing with these brands, and as we get more and more selection, we are really pleased with the customer engagement that we have there, both in terms of discoverability and the technology that goes behind making it easier to shop.”
Olsavsky declined to comment on speculation of Amazon increasing its physical footprint into groceries or otherwise, but he did offer that Amazon’s existing three bookstores “are great places to browse what has become a curated selection of books and is a great place to try out devices. We like what we see with that connection.” He added that Amazon would continue to try different delivery methods or pick-up points.
Translated into an apparel offering, this could mean that Amazon might test a showroom-like space that presents a limited selection of samples.
The number of people buying apparel on Amazon increased 26 percent this year, while the number of people buying apparel from Wal-Mart and Target is slightly decreasing, according to estimates from Cowen and Co. By 2021, Amazon’s U.S. apparel gross merchandise volume is expected to reach as much as $62 billion, up from an estimated $22 billion this year.
Amazon is consistently viewed by online merchants as the one to beat — or at least to run beside — but with the firm’s venture into brick and mortar, it is expanding its retail footprint into the physical realm.
The company will have opened five bookstores by the end of the year and has multiple pop-up mall kiosks, which primarily sell electronics.