Amazon’s e-commerce retail sales fall 3% in the first quarter as consumers return to stores

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Diving Brief:

  • Amazon’s first-quarter online retail sales fell 3% year-over-year to $51.1 billion, while physical store sales rose 17% to 4, $6 billion. Net product sales fell 1.8%. The company’s overall net sales, including its AWS cloud services unit, rose 7% to $116.4 billion.

  • Its e-commerce services posted gains. Marketplace selling fee revenue increased 7% to $25.3 billion, subscription services increased 11% to $8.4 billion, and advertising revenue increased 23% to $7. $9 billion.

  • The company tipped into the red, with a net loss of $3.8 billion, compared to net profit of $8.1 billion in the year-ago quarter, according to a company press release. That included a $7.6 billion pretax loss on its investment in electric vehicle company Rivian Automotive.

Overview of the dive:

Amazon Chief Financial Officer Brian Olsavsky said Thursday that the company now offers “the widest selection ever” for Prime Shipping, the fast, free shipping enjoyed by its paying members. However, as consumers returned to stores in the early months of the year and inflation weighed on discretionary spending, e-tailer product sales took a hit.

While that revenue is down and growth in its retail-related services has also slowed, its costs continue to rise. The company’s total operating expenses rose 13.2% to $112.8 billion, including a nearly 23% increase in runtime costs. That’s partly due to rising costs, including labor, freight and fuel, but also due to excess capacity in the company’s distribution and transmission network, Olsavsky said.

In addition to taking steps to mitigate some of those costs, the company will achieve that capacity to some extent even this year, he also said. While keeping an eye on inflation, the company doesn’t see much impact on demand, according to Olsavsky.

“We’ll be really happy to have capacity in Q3 when Prime Day rolls around, because it’s always a big increase in inventory and orders. And then definitely during the holiday season,” he said. “The way we see it is that we have come out of two very tumultuous years. We are happy to have made the decisions that we have made over the past two years. And now we have the opportunity to do more to adapt our capacity to a more normalized demand model.

The company said Prime Day will take place in July. According to Insider Intelligence senior analyst Andrew Lipsman, to make up for muted sales, there could be another.

“It was a tough quarter for Amazon with trends in all key areas of the business going in the wrong direction and a weak outlook for the second quarter,” Lipsman said in emailed comments. “Conclusion: Amazon will need to find a way to re-ignite its business growth over the next few quarters – don’t be surprised if Amazon hosts a second Prime Day this year in October to generate additional revenue.”

The quarter’s results underscore how much Amazon’s own retail sales have fallen relative to the rest of its business, but it remains a robust operation. Olsavsky said the company “added millions of additional new Prime members during the quarter.” Analysts at the Telsey Advisory Group put the total at around 200 million worldwide. New initiatives such as Buy with Prime, allowing Prime members to leverage their Amazon payment and delivery when shopping on other sites, its growing logistics and business like its pharmacy offering “make Amazon more valuable,” Telsey analysts led by Joseph Feldman said in a Friday research. Remark.

Still, the quarter’s challenges set the stage for an unusually tricky year for the online giant.

“The company remains extremely strong and has a very attractive business model,” GlobalData chief executive Neil Saunders said in comments via email. “It is customer-focused and will remain the destination of choice for online shoppers. However, the year ahead will be more challenging than Amazon is used to, especially if economic conditions deteriorate further.”

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