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Amazon (NASDAQ: AMZN) its revenue is still growing at double digits in its US e-commerce unit, Web service unit and international markets. Yet, in its physical stores, sales stagnated.
While the e-business giant's overall turnover rose 20% in the fourth quarter – a rate that worries some analysts of slowing growth – its physical sites saw a 2.7% drop in its figure. of business compared to the previous year.
Data Source: Amazon.com quarterly filings with the SEC. Graphic by author.
Whole Foods is the essential of the story
This decline is notable as the fourth quarter provided the first year-to-year comparison to Whole Foods Market's sales following its purchase by Amazon in late 2017. The nearly 500 grocery stores top range offer the bulk of Amazon's physical store segment sales, which includes: Whole Foods, Amazon Books, Amazon Go, Amazon 4 Star and a number of ephemeral stores. Amazon, however, does not divide revenue from its store concepts.
This is also important because Amazon believes that Whole Foods has sufficiently abandoned its "Whole Paycheck" image to stop adding sites to the discount grocery chain and focus on introducing Whole stores. Foods in new markets. But consumer surveys do not necessarily confirm this point of view. In addition, recent reports indicate that Whole Foods will raise the prices of hundreds of items to cope with the rising costs of vendors, which will only reinforce the "Whole Paycheck" stereotype.
Image Source: Whole Foods Market.
The increase in the number of Whole Foods establishments will probably not result in stronger growth in comparable sales. If customers do not shop as much in their existing stores – perhaps because of the lingering belief that Whole Foods stores are expensive – adding new locations will not change that.
In addition, Amazon is aiming for significant growth that may not be justified. The company plans to open up to 3,000 Amazon Go convenience stores in less than three years. However, there is not much evidence yet that Amazon's retail plan is working, so it is premature to embark on a massive expansion. And if Amazon wants to achieve its ambitious goal, it will have to accelerate its efforts because there are currently only 10 Amazon Go stores in operation.
The competition meets
The physical retail market may be more difficult than expected by Amazon. It's also possible that Amazon did not foresee how its competitors like Walmart (NYSE: WMT) and Target (NYSE: TGT) would respond to the threat posed by its ever-expanding empire.
Walmart, for example, has invested billions of dollars in improving its online and digital presence to become an e-commerce leader, and has spent billions more on acquisitions designed to counter Amazon's encroachment. She bought the online retailer Jet.com in 2016 for $ 3 billion; Shoes.com, Moosejaw and Bonobos for a combined amount of $ 431 million in 2017; and last year, it acquired a controlling stake in Flipkart for $ 16 billion as part of an offer to dominate e-commerce in India.
Target also made several key acquisitions, including a $ 550 million spend in Shipt to improve its distribution services.
Target and Walmart now have much more consistent retail and e-commerce activities. Walmart in particular has made its stores a point of differentiation by using them as collection points for online orders. The option "buy online, recover in store" is only gaining importance for retailers.
Time will tell us
Amazon explains that the decline in Whole Foods 'sales in the last quarter is partly due to the realignment of Whole Foods' fiscal calendar to that of Amazon, which added five additional sales days in the fourth quarter of 2017 In addition, when consumers place their orders via Prime Now and then pick up their groceries at Whole Foods, the income is credited to the online unit, not to the physical location.
Amazon's chief financial officer, Brian Olsavsky, said that if you compare the results "from one apple to another," Whole Foods saw its sales increase by 6% during the quarter. The company has extended Prime Now's grocery delivery from Whole Foods to more than 60 markets, while Prime Now Pickup has been expanded to more than 20 markets.
It may take a few more quarters to get perfectly comparable numbers, but Whole Foods has not been the growth business expected by many. And with increased competitive pressure coming in at the same time as the rest of Amazon's growth is slowing down, there could be more difficult comparisons ahead.
John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a board member of The Motley Fool. Rich Duprey has no position in the mentioned actions. The Motley Fool owns shares and recommends Amazon. Motley Fool has a disclosure policy.
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