Amazon expects less from the holidays

Photo: Casimiro PT / Shutterstock.com

Amazon's neverending good news show is over: during the holidays the company expects its lowest turnover growth in years. On top of that, its home fashion brands are quite the disappointment. On the other hand, the retailer seems to be evolving to slower but more profitable growth.

 

Missed turnover expectations

Amazon's quarter results were far from bad, but still the company missed analysts' turnover expectations. The gross profit per share ended at 5.75 dollars (5.0 euros), quite a bit more than the 3.11 dollars (2.7 euros) Wall Street was hoping for and spectacularly more than the 52 cents per share it achieved the year before. Turnover did not maintain the same growth pace, though: 56.6 billion dollars (50 billion euros) is admittedly far more than the 43.7 billion dollars of last year, but also quite a bit less than the 57.1 billion dollars analysts were counting on.

 

Worse for analysts and investors are the predictions for the vital fourth quarter: Amazon predicts turnover between 66.5 billion and 72.5 billion dollars (58 to 63 billion euros), but analysts were counting on 73.8 billion dollars (65 billion euros). Profit will also be lower than the 5.79 dollars per share Wall Street was originally expecting. This is Amazon's lowest growth prediction in years, causing its worst stock plummet since January 2016.

 

Barely 100 items of apparel per month

RetailDive believes that one of the jarring factors is Amazon's fashion department: while the e-commerce giant is betting on private labels (66 of Amazon's 74 registered private labels are clothing brands), most of the corporation's own women's fashion brands (82 %) barely sell a hundred items per month, according to data platform Jungle Scout's calculations. Out of Amazon's ten worst performing private labels, nine of them are women's and girl's fashion brands.

 

Men's wear is doing better: Amazon is reported to be selling triple that amount per month on average. But that is still nothing compared to appliance brands AmazonBasics Presto, which provide a monthly turnover of 604,500 dollars (30,000 euros) and 108,735  dollars (95,000 euros) respectively.

 

Still, Amazon wants to be taken seriously as a fashion retailer, as the launch of its first physical pop-up store in Baker Street, London shows. Meanwhile, the retail giant is experimenting with ways to make online shopping for clothes more fun, for example by using the Amazon Echo camera for selfies, SnapChat Amazon Visual Search and a Prime Wardrobe service, where you only have to pay for the items you keep.

 

More profits from platform services

Amazon is boasting that the lower expectations are not just bad news: despite slower turnover growth, the company is slowly becoming more profitable. In addition, it gets less immediate turnover from its own sales, because today 53 % of goods sold on Amazon are coming from external platform sellers, but Amazon is getting lucrative turnover from its services to those sellers.

 

These services rose in the third quarter by 31 %, reaching 10.4 billion dollars (9.1 billion euros). Amazon earned 2.5 billion dollars (2.2 billion euros) in the third quarter from marketing and advertisement services on its own platform: no less than a 122 % increase! CFO Brian Olsavsky has stated that the company is working at higher efficiency, hiring fewer people than it used to and needing less new storage room.