Amazon has smashed earnings expectations, reporting double-digit revenue growth year over year as the lockdown fuelled online shopping purchases.

Amazon sales boom but increased supply costs weigh down growth

Amazon registered nearly $89bn in sales and $5bn in profit over the last three months, setting company records on both figures and blowing away Wall Street expectations as Covid-19 pandemic shutdowns pushed more shoppers online and into Amazon’s arms.

CEO Jeff Bezos had said last quarter that the company planned to spend around $4 billion on pandemic-related health and safety efforts for its workers throughout April, May, and June, and that those expenses might wipe out all of the company’s profit over the quarter.

Amazon, like many other retailers, was caught off guard by an influx of online orders during the pandemic, which resulted in logistics bottlenecks and supply chain shortages. The company’s one- and two-day delivery services were hampered with delays, marking a rare disruption in its normally speedy shipping operations. Amazon said online grocery sales tripled year-over-year in the second quarter and it increased grocery delivery capacity by more than 160%.

“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” Bezos said in a statement.
Demand continues to skyrocket, while Prime subscribers have been shopping more often and buying more products with each order.

Amazon is focused on making more room in its fulfillment centers as it prepares to head into the peak holiday shopping season in November.
Additionally, its Prime Day shopping event, which typically occurs mid-July, will now take place in the fourth quarter, aligning with the early October guidance it sent third-party sellers.

Chris Mole, CEO of Molzi, said: “This is the first quarter to fully overlap with the pandemic so the figures reflect the billions Amazon injected into its COVID-19 response. This should not dishearten investors, consumers or brands. As consumers have become reliant upon online purchases, Amazon has become the first-choice for both shoppers and companies wanting a significant online footprint. Our research shows that millions of Amazon shoppers ventured into new product categories for the first time during Q2 and the vast majority have indicated they will continue doing so. In fact, 15% suggest they will not return to physical shops for the foreseeable future, instead relying on ecommerce.

“Despite the increasing customer base, uncertainties lie ahead. Ordinarily, Amazon and sellers would now be on the cusp on Prime Day which sees demand and revenues spike as consumers flock to take advantage of deals. The postponement raises questions. Many are wondering how the proximity of Prime Day will impact Black Friday and the Christmas rush, other seasonal surges. Undoubtedly, both brands and Amazon alike must prepare supply chains in order to capitalise on the sales period and demand boost.

“Looking further ahead, Amazon’s recent Brexit announcement may have long-term implications for profit – both for sellers and Amazon. Fulfilment By Amazon in the UK will be separate from the EU next year meaning sellers will need to split stock between the two trading blocs. For sellers that don’t thoroughly prepare, this could mean losing out on millions of potential sales.

“Overall, once Amazon’s COVID-19 related spending subsides, the consumer and brand gains the company has made during Q2 will help to deliver strong profits and revenue growth long-term. The company’s proven ability to respond to challenges will set it in good stead for any tests ahead.”

On Amazon, Aaron Goldman, Chief Marketing Officer at 4C, said: “By beating analyst expectations on both the top and bottom line in Q2, Amazon showed the true strength of its business model. From a marketing standpoint, Amazon Advertising is a must-buy for any brand active on the platform. The ability to be present at the point of purchase and tie ad spend directly to sales is the holy grail for marketers. As we look out into the future, it’s clear the role of Amazon is only going to grow and brands will need to leverage closed ecosystems platforms that can optimize performance as part of an omnichannel strategy.”

Hugh Fletcher, Global Head of Consultancy and Innovation at Wunderman Thompson Commerce, said: “Amazon has had a strong performance during lockdown due to its ability to continue to provide a service to customers, with an unrivalled worldwide infrastructure and access to stock that is second-to-none. Before the pandemic, 75% of consumers said they wished brands and retailers offered similar services to the eCommerce giant, highlighting the grasp it already had on shoppers. And over the years it has managed to successfully extend its products and services, from non-essential items to grocery and even a recent foray into gaming – offering customers a speedy online experience that satisfies all needs.

“We recently found that over a third (35%) of all online shopping was conducted through Amazon’s marketplace during the lockdown period, reinforcing the company as the big retail winner in the wake of the COVID-19 pandemic. This rapid increase in market share may well be offset by rising costs over Q2 and the remainder of the year, but the pandemic has already conditioned consumers further towards Amazon. One-in-five (20%) consumers said they intend to purchase more with Amazon after the pandemic has passed, despite 21% expressing worries about its ongoing dominance.

“With Amazon making clear headway over its rivals, the focus will likely turn to the company’s image. The business outgoings may have risen to introduce extra measures that prevent the threat and potential spread of COVID-19 to frontline workers – but they are necessary investments and will be well-received by its customer-base. The company still has a long way to go in its journey towards social responsibility to improve consumer trust, reduce its global carbon footprint and improve its equality processes. If Amazon and Jeff Bezos can maintain a positive image throughout the COVID-19 pandemic, it has the potential to grow its market dominance even more.”

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