Amazon’s shares have slipped about 11% in the wake of last month’s earnings reports, as investors fretted about consumers’ belt-tightening.
“The continuing impacts of broad-scale inflation, heightened fuel prices, and rising energy costs have impacted our sales growth as consumers assess the purchasing power and organizations of all sizes evaluate their technology and advertising spend,” CEO Brian Olsavsky said on the most recent earnings call.
But amid individuals’ and families’ re-assessment of how much they spend — and where they spend — Amazon’s best defense against the macro shocks is its subscription model.
Amazon Prime is showing relative resilience even as consumers cut back on subscriptions overall (with smaller declines). Amazon Prime is the conduit through which the eCommerce behemoth will gain share of grocery spend and cut into brick-and-mortar sales.
In recent days, we’ve seen the announcement of the company’s “Stock Up and Save” program, which gives Prime members 20% off household essentials — groceries are among the most prominent category, and the mix spans both name brand and private-label offerings — once the online shopping cart’s tally exceeds $50.
More broadly, there’s the Subscribe and Save program (where users do not need, necessarily, to be Prime members), which offers 15% discounts on auto deliveries. Subscribe and Save offers discounts on name brands (we’ll use a smattering here: Neutrogena, Purina, Tide, Bounty) and Amazon’s own private-label products.
Some Relative Resilience
PYMNTS’ own proprietary research shows that, overall, consumers are cancelling subscriptions — but the rates of decline, overall, for Subscribe and Save, are relatively smaller than as seen with other providers. Indeed, our data shows that Subscribe and Save has the least amount of consumers who might cancel the service in the next 12 months, indicating that the value proposition is a sticky one.
These findings, coupled with other PYMNTS data on the jockeying for consumer spending show that, with subscriptions firmly in place, there’s room to gain some ground in food and beverage — the categories that are likely to be prioritized over other, more discretionary categories (electronics, for example). Scale matters here. Although Amazon has had about 2% share of the segment, as seen in second-quarter data, Walmart’s share has been eroding.
Meanwhile, Amazon’s physical store revenue — mainly Whole Foods Market — increased 12.5% in Q2 2022 compared to Q2 2021, and 2.8% compared to the previous quarter.
Amazon stands as the No. 2 retail grocer in the United States, which indicates some cross-channel opportunity — particularly with 166 million Prime members in place — to leverage the appeal of private-label and the Subscribe and Save offerings to newly-budget conscious consumers. The macro pressures will continue, but among Amazon’s best defenses are discounts and the convenience of regularly scheduled deliveries.
