MW Here's why more Americans than ever now shop at Amazon
By Charles Passy
A record 83% of U.S. households now shop with Amazon, which analysts say is directly related to the company's push into everyday essentials
As Amazon Prime members shopped the e-commerce giant's Prime Big Deal Days sales event on Oct. 8 and 9, many likely eyed savings on such higher-ticket items as large-screen televisions, imported espresso makers and the latest gaming consoles.
But these days, Amazon $(AMZN)$ is seeing consumers look increasingly to it for household goods - items like laundry detergent, batteries and toilet paper. And it's using its Prime sales event platform to promote that category, even as it offers deals on more expensive products.
In the process, Amazon, already a company whose annual revenue is around $600 billion across all its businesses, is becoming an ever-more dominant force in global retail, according to analysts and experts who spoke with MarketWatch. It's the latest evolution for a company that started life almost 30 years ago as an online bookstore, but has morphed to become the seller of a vast range of goods.
"You're seeing a behavioral change right before our eyes," said Sam Bloom, PMG's head of partnerships, of how Amazon shoppers are ever more likely to turn to the platform for the basics in their lives.
A recent PMG study adds weight to that argument, pointing out that during Amazon's recent July Prime Day event, the health and household category grew in terms of its share of sales, while such categories as electronics and apparel and accessories declined.
Market researcher Numerator has also noted that during recent Prime events, Amazon's top sellers included cat food and dishwashing products. Meanwhile, ahead of the October Prime Big Deal Days sale - essentially, a preholiday version of the July event - Amazon was touting deals on lightbulbs, vitamins and cat litter.
It's another stat from Numerator that may really tell the story, however - namely, the fact that a record 83% of U.S. households now shop with Amazon. And that's up from 76% just four years ago.
Also worth noting is the number of Prime members that Amazon now has worldwide - some 200 million, according to figures released by the company back in 2021. In 2018, the Prime membership total was 100 million, Amazon said.
Amazon is seeing this growth despite the fact that it's facing competition in the digital space from another retail giant. As in Walmart $(WMT)$, which in 2020 launched its Walmart+ membership program that offers Prime-style perks such as free shipping. More recently, Target $(TGT)$ hopped on the membership bandwagon with its Target Circle 360 as well.
See also: Target Circle 360 is live. Here's how it stacks up against Amazon Prime and Walmart+
Analysts emphasize that Amazon's growth, at least in terms of household penetration, is directly related to the company's push into household goods. That is, people are now more apt to turn to Amazon because it sells the basics, just like people embraced a more traditional form of retail for many years.
"It's the grocery-store model," explains retail analyst Bruce Winder.
And while some see signs of trouble ahead for Amazon, particularly since profit margins are lower in household goods versus many other product categories, that hasn't slowed the trend.
Shoppers are purchasing "a lot more consumables and everyday essentials," said Amazon CFO Brian T. Olsavsky earlier this year.
Analysts and others note that Amazon's success when it comes to selling household goods is rooted in three key factors: selection, pricing and speed of delivery.
The selection part is obvious to almost anyone who's shopped Amazon. It's not just that the company sells those consumables, it's that it sells them with such a degree of variety. Overall, the company says it offers 300 million items - essentials and nonessentials alike - with free Prime shipping.
When it comes to toilet paper, for example, consumers have their pick of plenty of familiar brand names - Scott, Charmin, etc. - as well as Amazon's in-house Basics brand. A six-pack of the latter happens to be the No. 1 seller in Amazon's health and household category, with more than 100,000 units purchased in the past month alone.
'You're seeing a behavioral change right before our eyes.'Sam Bloom, PMG's head of partnerships
The story goes beyond selection, however. Consumers are also likely wooed by Amazon's low prices. It's a point proven by a study from e-commerce researcher Profitero that found Amazon is the most affordable online retailer in several essential categories, from baby products to vitamins. In these cases, the No. 2 was typically Walmart, but Amazon was anywhere from 1% to 4% cheaper. (Walmart officials didn't respond to repeated requests for comment.)
But analysts say it's Amazon's shipping time that may be the retailer's biggest driver of business. The company has built up an extensive warehouse and delivery network, which has better enabled it to get things quickly to its customers. Amazon points to the fact it reached its fastest Prime delivery speeds ever in the first half of 2024, with 5 billion-plus items arriving the same day or next day globally - a year-over-year increase of 30%.
That makes it attractive for shoppers to buy even a single thing of, say, dish soap on Amazon. The argument goes: Why make a trip to a bricks-and-mortar retailer when the item will be at your doorstep within hours and you've already paid for a Prime membership that includes free shipping?
The delivery network also makes it cost-effective for Amazon to ship those items. As Laura Martin, an internet analyst with Needham & Company, explains, Amazon has the vehicles and workers in place, so adding another package - even a package with just that dish soap - doesn't really add to the costs. But it still creates some profit.
"They're delighted to sell you that Palmolive," Martin said, pointing to the popular dish-soap brand.
Not that there aren't issues here for Amazon. Chief among them may be the aforementioned profit-margin dilemma.
Gil Luria, an analyst with D.A. Davidson who tracks Amazon, put it into context: "Even at the same 20% markup, and the same box size, a box of dishwasher detergent could generate $4 of profit and a gaming console $100."
When Amazon announced its revenue for the second quarter of 2024, which was lower than analysts' expectations, Olsavsky pointed to the fact that consumers were "being careful with their spend" - again, something that arguably favors those everyday essentials at the expense of discretionary items.
Investors clearly didn't like that scenario: The company's stock declined by about 20% in the days after, though it has since recovered. Some analysts see potential for shoppers to be more generous in their spending this holiday season - and it's certainly worth remembering that Amazon's October sales event will go far beyond essentials to encompass higher-ticket items.
See also: Why this holiday season, shoppers might finally be ready to buy fancier stuff
Others, including consumers, point to a different dilemma with Amazon shipping out those billions of packages. Namely, the potential for environmental harm as a result of all the fuel and packaging that's involved.
"There is definitely a downside," said Ann Magnin, a resident of Norwalk, Conn., who refuses to shop with Amazon.
Amazon defends its environmental record, citing steps it has taken recently to reduce its impact on the planet, such as replacing 95% of the plastic air pillows from delivery packaging in North America with paper filler.
"Innovating for customers and advancing sustainability initiatives aren't mutually exclusive - we do it every day," an Amazon spokesperson said.
In some ways, Amazon's success with getting consumers to rely on it ever more - for basics and beyond - may be secondary to the company's growth prospects, some analysts note. Other aspects of the company's business, such as its AWS cloud platform, have taken on increased importance. As Martin, the Needham analyst, recently wrote: "Amazon is a services company (i.e., advertising, cloud, Prime Video, etc.), NOT a products company, and e-commerce is all about products."
But try telling that to Marla White, a resident of Southern California who shops Amazon for laundry detergent, dog supplies, vitamins...the list of basics goes on and on. White says when she sometimes is in a panic about needing an item quickly, she finds Amazon can have it delivered the same day.
"I'm like, 'God love you,'" she said.
-Charles Passy
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(END) Dow Jones Newswires
October 12, 2024 09:59 ET (13:59 GMT)
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