Online retailer Amazon has has beaten expectations for the third quarter of 2019 with sales lifting by 24 per cent to US$70 billion, but earnings fell short amidst fierce competition and rising costs to speed up delivery worldwide.
Amazon’s free one day delivery time for Prime members has been expanded to rival Walmart which is aiming for two-day shipping for its customers.
“We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery. Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year,” said Jeff Bezos, Amazon founder and CEO.
Bezos said in a statement that it’s a big investment but a good long term strategic move for the company. He sees the faster delivery time with products shipped directly from Amazon’s fulfillment centers that are closer to the customer’s home, which reduces the carbon footprint.
Amazon chief financial officer Brian Olsavsky said on a call with reporters that the new speedy delivery program will cost the company almost double to US$1.5 billion during the holidays, according to Reuters.
“By and away the biggest driver this time is the people that we’re adding for fulfillment and transportation roles,” Olsavsky said.
Currently, the company has over 100 million Prime loyalty subscribers. It also expanded its grocery service, AmazonFresh, in other US states such as Indianapolis, Houston, Minneapolis, and Phoenix with options for one- and two-hour delivery time frames.
Neil Saunders, managing director of GlobalData Retail said the transition to free one day shipping was “a classic Amazon move”.
“It put the company one step ahead of the competition and helped to create a strong point of differentiation for the customer. However, the change comes with a significant cost attached: compared to last year shipping costs are up by 46%, or by $3 billion in monetary terms. This huge hike has taken its toll on the bottom line where operating income fell by 14% and net income by 26%,” Saunders said.
