BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Why Amazon Is Moving To Make One-Day Prime Shipping The New Norm

This article is more than 4 years old.

Getty

Amazon just upped the ante for the retail industry once again, saying it is moving fast to evolve its signature two-day free shipping for Prime members into one-day free shipping.

“This is a big investment,” Brian Olsavsky, Amazon’s chief financial officer, said on a conference call Thursday night, when Amazon reported Q1 earnings more than doubled.

Amazon plans to spend an incremental $800 million in Q2 alone—that’s more than one-fifth of its net income in Q1—on this new initiative, with plans to build out the “capacity” the rest of this year, Olsavsky said. In the past month, Amazon “significantly” expanded the selection of products and zip codes eligible for one-day shipping, he said.

Amazon will also continue to have many items available for same-day, and Prime Now one- or two-hour, shipping, he said.

The news dominated the earnings call, with analysts asking numerous questions, especially with Amazon having slowed fulfillment and shipping costs growth and posted record profits in recent quarters.

“What’s the big opportunity to invest in one-day?” Morgan Stanley analyst Brian Nowak asked.

Without being more specific, Olsavsky said one-day free shipping is not only about increased convenience; it also “will open up a lot of potential purchases.” “We really think it’s going to be groundbreaking for Prime members,” he said.

Amazon’s Prime membership—with myriad perks that also include Prime Video—continues to be Amazon's key weapon to hook customers into its ecosystem of products and services. That’s crucial at a time when traditional retail giants, including Walmart, Target and Best Buy, are upping their game and capitalizing on their much bigger physical-store footprints to better compete against Amazon. Walmart has also doubled down on third-party online marketplace offerings and made it easier for sellers to fulfill two-day free shipping, without the need of a membership.

Olsavsky said Thursday that Amazon signed up more Prime members in 2018 than any other year. Consumer Intelligence Research Partners estimated in January that Prime membership—which it said represented 62% of Amazon customers—topped 100 million at the end of last year in the company's top market, the U.S. Last April, CEO Jeff Bezos said Amazon's global Prime membership topped that same milestone, 13 years after the launch.

Prime “remains a very compelling program,” Olsavsky said Thursday.

Getting Prime members to spend more could be relevant as Amazon’s online-store and third-party seller services sales, while still the envy of the retail industry, have slowed. Its Q1 worldwide paid units sold rose 10%, which RBC analyst Mark Mahaney said is the slowest growth he’s seen. “How do we think of the sustainability of the growth?” he asked on the call.

Olsavsky said that percentage didn’t include results from the company's faster-growing segments, including the AWS cloud service, advertising and subscription services like Amazon Music Unlimited and Prime.

Q1 sales minus currency impact rose 42% for both the subscription service and AWS, which counts customers including Lyft and Volkswagen. Advertising sales, another key growth focus, rose by more than 36%, Amazon's finance chief said.

In comparison, online store sales rose 12%; third-party seller services gained 23%; and sales made in physical stores, primarily Whole Foods, climbed just 1%.

And that's not to mention that, on the profit front, AWS will continue to do the heavy lifting and help fund Amazon's various projects. While representing only 13% of Amazon's total sales, AWS posted a 59% jump in Q1 operating income, to $2.2 billion—half of the company's total.

Related on Forbes: Neiman Marcus invests in luxury reseller Fashionphile, proving the power of re-commerce and millennials

Related on Forbes: Best Buy continues to bet on digital health with new TytoHome deal

Related on Forbes: REI doubles down on rentals and used gear sales

Related on Forbes: How French luxury label Hermès plans to attract millennials

Follow me on Twitter