Despite Inflationary Pricing Customers Continue To Spend, Amazon Sales Up 15%

Amazon’s third-quarter (Q3) results showed an increase in sales despite the current economic environment of high inflationary pricing and consumer sentiment that dropped nearly 17% from last year. Consumers are looking for value and convenience with a focus on pricing this holiday season.

The North American market grew 20%

Despite the 8.2% inflation rate, strong sales in the U.S. market show that customers are buying, although prices are higher. Shoppers are watching their spending and looking for various options in terms of product assortment, as discussed in Amazon’sAMZN
earnings call. “We now offer our widest selection ever. We’ve taken actions that have driven strong recovery of in-stock rates, all while ensuring our pricing remains sharp for our customers,” said Brian Olsavsky, Senior Vice President & Chief Financial Officer of Amazon.

Shoppers are looking for deals, shopping early, and being selective

Shoppers are focused on value pricing and are looking for deals. Convenience will play a role in how shoppers purchase gifts this year. Consumers, 78% of those surveyed, are being more selective with gift giving, according to the newly released Amex Trendex report. According to American ExpressAXP
, “Consumers want to ensure they are spending time and money on gifts and experiences that matter.” Due to costs, more than three-fourths of surveyed consumers are planning on being more thoughtful about what they are spending this year than in previous years. The Amex Trendex report also showed that 72% of consumers surveyed are looking for holiday gift options and discounts earlier in the year than they used to, and 59% of consumers surveyed agree they want to buy themselves a gift this holiday season.

Pricing and convenience are essential for holiday selling

Amazon is keen on delivering a wide assortment of high-in-stock items and remains very focused on pricing and promotions. Amazon kicked off the season a few weeks ago with its first-ever Prime Early Access sales event, where tens of millions of Prime members shopped and ordered more than 100 million items from Amazon’s selling partners. “We remain heads-down focused on driving a fantastic customer experience,” said Olsavsky, “We believe putting customers first is the only reliable way to create lasting value for shareholders.” Amazon had its biggest Prime Day event this July, where members purchased more than 300 million items worldwide. “The customer response to both events was quite positive, and it’s clear that, particularly during these uncertain economic times, customers appreciate Amazon’s continued focus on value and convenience,” said Olsavsky.

Other factors helping to drive Q3 revenue

Amazon premiered several new entertainment series during Q3, including The Lord of the Rings: The Rings of Power, which attracted more than 25 million global viewers on its first day, the biggest debut in Prime Video history. Amazon is broadcasting NFL Thursday Night Football, and the company also announced new commitments from AWS customers across many industries and geographies, such as BMW.

While sales were up, Amazon’s profits took a hit

The company experienced lower profits in North American and International markets than last year. Amazon profits were down 9% compared to the previous year, with Amazon Web Services (AWS) the only business segment with higher profits for Q3. Olsavsky discussed the need to get cost structures back in line with pre-pandemic levels, impacting the company’s profitability.

Amazon Prime events are another factor that affects the bottom line. These events yield lower profits because of the reduced prices and products purchased. Amazon devices, for example, have a much lower gross profit margin. Executives at Amazon stated that they do not make much money on the devices they sell. For the Prime Day events this year, devices had record-breaking sales.

Amazon Web Services (AWS) sales were up 27%, and profits were up 11% for Q3. AWS continues to drive the company’s overall profits with year-to-date operating income up 33%, although these results are lower than expectations.

Holiday selling will not be as robust as last year

Fourth-quarter sales for Amazon are expected to grow between 2% and 8% compared to 2021. The market did not react favorably to this guidance and missed expectations for revenue growth at AWS driving the company’s stock price down after the earnings were released.