Sales at Amazon's physical stores are down 16% in first quarter.
Robust consumer demand kept Amazon in record-setting territory during the first quarter as the company logged a 44% year-over-year revenue increase and profits more than tripled to $8.1 billion.
Demand for the company’s e-commerce and advertising businesses drove the revenue and profit gains. But the company reported a big sales decline at its physical stores, which include its four grocery banners of Whole Foods Market, Amazon Fresh, Amazon Go Grocery and Amazon Go, the largest such drop in years.
For the first quarter ended March 31, Amazon said revenue increased 44% to $108.5 billion compared with $75.5 billion in the prior year. Excluding the $2.1 billion favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 41%. Operating income increased to $8.9 billion in the first quarter, compared with operating income of $4 billion in the prior year. Net income increased to $8.1 billion, or $15.79 per diluted share, compared with net income of $2.5 billion, or $5.01 per diluted share, in first quarter of 2020. Operating cash flow increased 69% to $67.2 billion. Free cash flow increased to $26.4 billion.
“Two of our kids are now 10 and 15 years old — and after years of being nurtured, they’re growing up fast and coming into their own,” said Jeff Bezos in his last earnings report as CEO before he steps down on July 1. “As Prime Video turns 10, over 175 million Prime members have streamed shows and movies in the past year, and streaming hours are up more than 70% year over year. Amazon Studios received a record 12 Academy Award nominations and two wins. Upcoming originals include Tom Clancy’s Without Remorse, The Tomorrow War, The Underground Railroad, and much more. In just 15 years, AWS has become a $54 billion annual sales run rate business competing against the world’s largest technology companies, and its growth is accelerating—up 32% year over year. Companies from Airbnb to McDonald’s to Volkswagen come to AWS because we offer what is by far the broadest set of tools and services available, and we continue to invent relentlessly on their behalf. We love Prime Video and AWS, and we’re proud to have them in the family.”
Earlier this week Edge by Ascential released a survey indicating that Amazon is on track to overtake Walmart as the largest U.S. retailer by 2025. Amazon GMV sales are projected to reach $631.6 billion by 2025 (a compound annual growth rate of 14%), according to Edge by Ascential’s market research arm Retail Insight. Meanwhile, Walmart sales are projected to grow at a CAGR of 3.9% to reach $523.3 billion by 2025.
“As Amazon grows to become the largest retailer in the U.S., brands must understand they cannot win through mass personalization when faced with the huge spending power of large marketplaces like this. They should therefore ensure they have the correct strategies in place to use marketplaces, like Amazon, to reach the right consumers and meet their needs,” said Deren Baker, CEO at Edge by Ascential.
Moreover, Edge by Ascential analysts predict that there will be a more permanent shift to online grocery even after the relaxing of social restrictions and a return to some sort of normality. During the peak pandemic period of 2020, online grocery sales accelerated, up by about 35% in 2020 to reach $30.8 billion. For a fifth of online grocery shoppers in the United States, this was their first time doing their grocery shopping online, accelerating long-term e-commerce adoption trends. The pace of growth for online grocery will level off after the 2020 boom, but grocery e-commerce is still expected to grow at 13.3% CAGR between now and 2025, according to Edge by Ascential analysts.
In the meantime, Amazon has been making changes to its omnichannel grocery ecosystem at a frenetic pace.
On April 27, Amazon announced that it is expanding Key by Amazon In-Garage Grocery Delivery to everywhere grocery delivery from Amazon is available, providing the service to more than 5,000 U.S. cities and towns. Originally launched in five cities last November, Key In-Garage Grocery Delivery proved to be very popular with Amazon customers, according to the company. It can now be used by millions more eligible Prime members wishing to have their Amazon Fresh and Whole Foods Market groceries delivered inside their garage to keep packages safe from weather, damage and sticky-fingered neighbors.
“Customers who tried Key In-Garage Grocery Delivery have loved the service, which is why we’re expanding it to everywhere Amazon offers grocery delivery,” said Pete Gerstberger, head of Key by Amazon. “As customers look for more convenience in their daily lives, we’re excited to deliver another service that not only helps them save time, but provides peace of mind knowing that tonight’s dinner is safe in their garage and out of the weather.”
The garage grocery delivery expansion comes just one week after Amazon made another announcement in its quest to reinvent the grocery space and how consumers shop. The company is now allowing grocery shoppers at Whole Foods Market to pay for groceries without cash, credit cards or even a smartphone app.
Amazon announced April 21 that it is launching its Amazon One technology at Whole Foods Market in Seattle, with plans to expand the tech cross the chain in the coming months. Amazon One allows shoppers to pay using the palm of their hand: their unique palm signature, as Amazon calls it.
Amazon first introduced the technology in September as an entry and payment option at several non-Whole Foods stores in the Seattle area, including Amazon Go, Amazon Go Grocery, Amazon Books, Amazon 4-star and Amazon Pop Up.
Amazon says thousands of customers have signed up for the service, and feedback has been great — customers have shared they appreciate how quick it is to enroll and use, and that its contactless nature has been helpful in the current environment.
"Over the past several years, we’ve focused on innovating on behalf of our customers to make their shopping trips easier and more effortless," said Dilip Kumar, VP, physical retail and technology at Amazon. "We started with Just Walk Out technology in Amazon Go, and we have since brought that experience to new store formats and locations, and made it available as a service to third-party retailers to use in their stores. We built the Amazon Dash Cart, a smart shopping cart that helps customers in our Amazon Fresh grocery stores skip the checkout line and roll out when they’re done. Most recently, we introduced Amazon One, a fast, convenient, contactless way for people to use their palm to enter, identify and pay."
As for Amazon's other Q1 highlights, the company said there are now more than 200 million paid Prime members worldwide. In the United States, Same-Day Delivery in as fast as five hours is free on orders over $35 on over 3 million items in select cities. This is in addition to Free Same-Day Delivery on millions of items in thousands of cities and towns across 47 major U.S. metro areas, plus over 10 million items available for Free One-Day Delivery coast to coast.
Amazon continues to expand Amazon Scout, a fully electric autonomous delivery system. Similar in size to a small cooler on wheels, Amazon Scout rolls down the sidewalk at walking pace and delivers items right to customers. Since its launch, Scout has delivered tens of thousands of packages to customers in California, Georgia, Tennessee, and Washington, and the program is continuing to expand to new communities in the United States.
Amazon now has 15 Amazon Fresh physical grocery stores. Amazon opened its first international physical retail stores powered by Just Walk Out technology with the launch of three Amazon Fresh locations in London. These new convenience grocery stores sell a range of products, including the new “by Amazon” private brand, and enable shoppers to enter a store, grab what they want, and leave without stopping to check out. Amazon Fresh grocery stores expanded into four new communities in the United States: Oak Lawn, Illinois; Bloomingdale, Illinois; Fullerton, California; and Long Beach, California.
Finally, Amazon continues to expand its air cargo network to meet growing customer demand. In January, the company announced the purchase of 11 aircraft from Delta and WestJet to expand its Amazon Air fleet to more than 85 aircraft by the end of 2022. Amazon also announced new Amazon Air sites in Toledo, Ohio and Fairbanks, Alaska, and plans to expand existing operations in Canada this summer.