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Amazon's ambitious plan to offer a one-day delivery to premium members is already costing more than expected. But at least one investment bank is betting that the shipping initiative will be a long-term boon for the company's share price and overall sales.
Given the increased adoption of Premium and the increase in each member's expenses relative to the one-day supply, RBC Capital Markets said Tuesday in a research note that Amazon could generate an annual income an additional $ 24 billion. The company also raised its 12-month stock price target from $ 2,250 to $ 2,600, an increase of nearly 50 percent from Amazon's closing stock price of $ 1,789 on Tuesday.
Amazon announced plans earlier this year to upgrade its free two-day premium shipping program in one day to speed up delivery times for the company's most valuable customers. The company is currently deploying a one – day expedition to North America, and then to the international one. Amazon said in June that Premium members could benefit from a free one – day shipping on more than 10 million products, with no minimum purchase amount.
The company hopes that this strategy will add value to its premium subscriptions at $ 119 / year and increase the number of purchases that customers make on Amazon compared to others – including physical retailers.
Amazon was expecting $ 800 million for the second quarter related to this initiative. In July, she said these costs were higher than expected, as the technology giant increased capacity with its transportation networks and warehouses.
The shipping costs of the company have exploded in recent years in order to speed up deliveries. During the second quarter, Amazon spent $ 8.1 billion on shipping, up 36%. In 2018, Amazon spent $ 27.7 billion on shipping, an increase of $ 6 billion, or 28%, from the previous year.
But based on its own calculations and discussions with industry experts, RBC is optimistic about the investments and the possible impact of a one – day shipment. The company also surveyed consumers and noted that Amazon "exploits the actual demand" on the part of those who want a shipment the next day.
Amazon's demand for faster shipping has transformed the retail industry, with many competitors such as Target and Walmart now offering their own free shipping options in two days. In May, Walmart unveiled the delivery of one day on more than 200,000 items with a minimum order threshold of $ 35.
RBC stated, however, that with 20 years of experience in building its delivery infrastructure, Amazon still had a significant competitive advantage: 175 global order fulfillment centers, 40 sorting, 100 distribution stations and 20 airbridges. has itself become a third-party logistics service provider, making replication by almost all retailers increasingly difficult. "
And just as Amazon has forced its competitors to offer their own promise of free shipping for two days, RBC thinks that the story is repeating itself day after day: "… we think that once it's over, it's a good idea. Amazon will have developed an even more loyal user base with a free one day delivery, so the industry may need to follow again. "
RBC also sees this one – day initiative as a win for sellers on Amazon, noting an inertia effect. "One-Day makes Prime more attractive to consumers, which makes FBA (Fulfillment by Amazon) more attractive to suppliers, which increases the offer on Prime, making Prime more attractive to consumers …". This could also increase Amazon's potential as a third-party logistics provider, RBC said. The company is building its own distribution network, forcing longtime partners such as FedEx to break shipping links with Amazon.
Amazon launched its premium membership program in 2005, priced at $ 79 a year, with a free 2-day shipping. He has raised prices twice while continually adding new benefits. There are more than 100 million qualifying premium elements in the United States.
Amazon reported having more than 100 million Premium members in 17 countries in April 2018; he has not provided a number updated since. In addition to free and fast delivery, members also enjoy benefits such as cloud storage, streaming movies and TV shows, discounts at Whole Foods and more. other advantages.
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