Amazon’s one-day shipping bet dents profits this holiday season

Scott Tong Dec 26, 2019
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Sean Gallup/Getty Images

Amazon’s one-day shipping bet dents profits this holiday season

Scott Tong Dec 26, 2019
Sean Gallup/Getty Images
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So, what’d you get this Christmas from Amazon, er, Santa?

Presents may have arrived a little faster than usual for Prime members. Amazon’s big push this year was to roll out free one-day shipping for many items. But the costs incurred by the “Everything Store” — more warehouses, more drivers, more shifts — cut significantly into profits last quarter and, according to the company, will yield a less profitable holiday season as well.

Revenue from next day delivery items don’t always cover the costs, according to one Wall Street firm analysis.

“The average one-day package is only a $8.50 purchase, but it costs a little over $10 to [deliver] it,” said Erik Gordon, business professor at the University of Michigan. “So this is another one of those Amazon ‘we will lose money for awhile, maybe even a long time before we make a lot of money off it’ deals.”

Next day delivery raises expectations for consumers, and it raises the logistics bar for competitors that will struggle to clear it, Gordon said.

One area where rivals are catching up: cloud computing. In the third quarter of 2019, Amazon Web Services provide 71% of the company’s profits, according to the latest earnings figures, but competing services such as Microsoft Azure and Google Cloud Platform are eating into the AWS market share, notably in the retail sector.

“If you’re a big retailer, you don’t necessarily want to rent your computing power from one of your big competitors,” said Jason Goldberg, strategist at the Publicis Group ad firm. “If you’re Target, you probably don’t want to be giving that profit direct to Amazon to compete against you.”

In 2020, analysts expect Amazon to push into telemedicine, linking patients and providers online, and brick-and-mortar grocery stores.

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