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There’s A Warning To Physical Retailers In Amazon’s Q2 Earnings

Things may look grim for physical retailers, but an alliance isn't out of the question.

Amazon’s market value has just surpassed Walmart, meaning that for the first time, the largest retailer in the world is an ecommerce company.

The internet retailer’s stock earned 19 cents a share on $23.2 billion in revenue Thursday, July 23rd, putting Amazon’s market value at $250 billion, more than Walmart’s $233 billion.

During the company’s Q2 analyst call, Amazon CFO Brian Olsavsky said there is “certainly” a correlation between speeding up delivery, with same-day delivery services such as Prime Now, and increased spending.

Dangerous Waters

For some, Amazon’s climb to the top of the retail pack is reason for pause. On Twitter, Ryan Craver, president and CEO of Lamour-owned children’s apparel brand Trimfit, said: “With how great Amazon earnings were, don’t be surprised to see the mainstream pendulum swing back to “the death of brick & mortar.”

Jason Del Rey of Recode responded on Twitter, “If I [were] Macy’s, [I’d be] terrified of what I’m seeing.”

The idea that e-commerce will completely overtake physical retail may be exaggerated, but it is not without a grain of truth. Craver told GeoMarketing that the convenience and visibility of online commerce has given Amazon a huge leg up.

“Although e-commerce is currently only 8-10 percent of total retail sales, the impact of online visibility to product, pricing and information is undeniable,” Craver said. “Focus by the e-tailers on grocery and further buildout of delivery networks like Instacart, Deliv, Amazon Fresh and Uber are some of the catalysts who will drive an even greater inflection point for brick & mortar sales shifting to ecommerce.”

A Possible Partnership

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Trimfit CEO Ryan Craver

The majority of Amazon’s recent surge in earnings came from its AWS unit, which sells cloud computing and data storage services. AWS grew 81 percent year over year to $1.8 billion. The division’s operating profit margin was 21 percent for the quarter, up from 17 percent in the first quarter, which at the time was already a pleasant surprise to analysts.

Despite the focus on AWS, the rest of the retail world should still take notice, Craver said. “Although the large portion of Amazon’s recent revenue growth was driven by AWS/cloud services, the Amazon platform is one that all big box retailers are paying close attention to.”

But Craver does not ultimately foresee war, but rather an education as physical retailers learn from Amazon’s success and use it to grow their own campaigns.

“Within apparel alone, Amazon is the first stop for ~40 percent of initial searches,” said Craver. “How can any retailer avoid that stat? An alliance of some sort between major retail chains and Amazon is inevitable. You can’t avoid the scale, reach or frictionless buying Amazon provides.”

“For Trimfit specifically and other Lamour brands, we view Amazon as a critical partner,” Craver added.

About The Author
Daniel Parisi Daniel Parisi @daniel_parisi_

Daniel Parisi is a New York City-based writer and recent graduate of the University of Maryland. Daniel specializes in coverage of mobile payments, loyalty programs, and the Internet of Things.