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Amazon Plans to Deliver Packages to Prime Members in One-Day Around the Globe

The announcement adds pressure to rivals Walmart Inc and others already racing to keep pace with the speed and benefits of Amazon's Prime program

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amazon, one-day delivery
An Amazon Prime Truck is on the Road in Virginia, transporting thousands of items ordered from online giant Amazon. (D Bekheet/VOA)

Amazon.com Inc plans to deliver packages to members of its loyalty club Prime in just one day, instead of two days, part of a spending ramp-up that might curb future profits after a blockbuster first quarter.

Shares rose as much as 2% in after-hours trade on Thursday on the faster shipping announcement for customers around the globe and as Amazon’s first-quarter profit trounced estimates thanks to soaring demand for its cloud and ad services. Amazon will spend $800 million in the second quarter on the goal.

The announcement adds pressure to rivals Walmart Inc and others already racing to keep pace with the speed and benefits of Amazon’s Prime program. Amazon’s first-quarter net income more than doubled to $3.6 billion, while analysts were only expecting $2.4 billion, according to IBES data from Refinitiv.

Second-quarter operating income will be as much as $3.6 billion, but analysts had been expecting $4.2 billion, according to FactSet. Chief Financial Officer Brian Olsavsky said Amazon was still reaping rewards from prior years of hiring and investments in warehouses and other infrastructure.

amazon, one-day delivery
Amazon’s first-quarter net income more than doubled to $3.6 billion, while analysts were only expecting $2.4 billion, according to IBES data from Refinitiv. VOA

“We’re banking the efficiencies of prior investments, continued into Q1,” he said on a call with reporters. “There’ll be times when we have to invest ahead to build out warehouse capacity, but right now we are on a nice path where we are getting the most out of the capacity we have.”

Olsavsky also said earlier that the company would spend more later this year to roll out more benefits to international Prime members.

Investments mean lower profits

The news marks a familiar refrain for the world’s largest online retailer. For years, Amazon has made expensive bets on new technology and programs, like its $13.7 billion purchase of Whole Foods Market in 2017 to become a player in the U.S. grocery business.

Amazon’s investments had long meant lower profit. However, its steady, often successful marches into new industries have been lucrative to shareholders, including its founder Jeff Bezos, who had become the richest man in the world.

The luster of these bets still shined brightly on Thursday. The company’s loyal customer base has drawn merchants to sell and increasingly advertise through its site in exchange for fees, helping Amazon transform from a largely low-margin retail business to a more and more lucrative marketplace.

amazon, one-day delivery
Chief Financial Officer Brian Olsavsky said Amazon was still reaping rewards from prior years of hiring and investments in warehouses and other infrastructure. VOA

Revenue from seller services jumped 20% to $11.1 billion in the first quarter, while ad and other sales surged 34% to $2.7 billion, the company said.

Meanwhile, Amazon’s cloud unit kept growing as more enterprises moved data and computing operations to the technology company’s servers. Sales for Amazon Web Services (AWS) rose 41% to $7.7 billion in the first quarter.

More hiring, spending to come

Some analysts noted that these growth figures, while impressive, were lower than what Amazon had posted in prior quarters.

“Amazon delivered slower growth in all key segments,“ (AWS, advertising and e-commerce) “but margins skyrocketed, seemingly driven by less aggressive investment,” said Atlantic Equities analyst James Cordwell.

Amazon suggested that spending indeed was on the way, and with that smaller growth in profit.

‘Lord of the Rings’ prequel

The company has been building warehouses around the world to ensure its edge in delivering goods to customers the fastest. It is spending more on video, from live sports to a planned prequel series to “The Lord of the Rings,” to draw more people to log on to its website, watch, and while they are there, buy socks. Hiring will pick up from the 12 percent increase Amazon posted in the past 12 months, Olsavsky said.

amazon, one-day delivery
Amazon’s investments had long meant lower profit. However, its steady, often successful marches into new industries have been lucrative to shareholders, including its founder Jeff Bezos, who had become the richest man in the world. VOA

And the company is delving into even less familiar terrain.

It recently announced investments in self-driving and electric car companies, teasing how it thinks these high-tech, capital-intensive businesses could pay dividends potentially in the form of autonomous deliveries in the long run. Amazon has not described in detail its thinking behind the bets.

In China, where the company had long struggled to compete with Alibaba Group Holding Ltd, Amazon said this month it would close warehouses and its domestic marketplace in July. There were silver linings for investors, however. Amazon’s Olsavsky said the company saw no material impact in India from actions the company took to comply with new regulations there affecting foreign investment in the e-commerce sector, something Amazon had voiced concern about in the past.

Prime signups on rise in India

Prime member signups in India, one of Amazon’s most important growth markets, continue to be rising the fastest in the company’s history.

ALSO READ: Amazon Verifying Drivers’ Identity Using Facial Recognition

Bezos, who many regard as a management guru, also settled his closely watched divorce such that he will retain full voting control of his family’s stock, sparing Amazon a boardroom battle. However, his fortune, which has been the largest of any married couple in the world, will be divided.

The company forecast net sales of between $59.5 billion and $63.5 billion for the second quarter, the midpoint of which was below analysts’ average estimate of $62.37 billion, according to IBES data from Refinitiv. (VOA)

Next Story

Reliance Retail Set to Disrupt Amazon, Walmart-Flipkart

The eCommerce competition in India remains fierce

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Reliance Jio. Source: www.reliancejio.website

Reliance Retail’s upcoming entry into the online retail sector is the biggest challenge for Amazon and Walmart-Flipkart as the Mukesh Ambani-led behemoth is well positioned to create massive disruption in the market, a new report has stressed.

According to the global market research firm Forrester, the online retail sales in India will grow at a five-year CAGR of 25.8 per cent to reach $85 billion by 2023, despite the hiccups of demonetization in 2016, GST in 2017 and the governmental changes in eCommerce policy announced last December.

The time is ripe for Reliance Retail, which operates 10,415 stores in more than 6,600 cities, with 500 million annual footfalls – giving the company the kind of scale required to swiftly launch India-based operations.

“One of the things that will trouble Amazon and Flipkart is Reliance’s history of launching operations via massive discounts,” Satish Meena, senior forecast analyst at Forrester Research, said on Tuesday.

Reliance entered the telecom sector in 2003 with the Monsoon Hungama tariff plan, which brought tariffs for voice calls down to just Rs 0.40 a minute from the existing rate of Rs 2 a minute, followed by the launch of Jio 4G plan in 2016 that dropped data rates from Rs 250 per GB to Rs 50 per GB.

“This kind of discounting can disrupt any market, and we expect something similar to happen in the grocery space during Reliancea¿s launch,” Meena added.

Reliance is fast working on creating the world’s largest online-to-offline New Commerce Platform, according to Mukesh Ambani, Chairman and Managing Director, Reliance Industries.

“Due to the recent changes in eCommerce policy and the restrictions on an inventory-led model for marketplaces with FDI, Reliance Retail is finding a favourable policy environment to launch operations where it can use its existing retail infrastructure to deliver goods to customers,” the Forrester report noted.

Reliance launched the food and grocery app among its employees in April 2019 to prepare for the commercial launch later in the year.

Reliance Retail is the largest retailer in India, with $18.7 billion in revenue during financial year 2019, and it grew at a CAGR of 55 per cent in the last five years.

Reliance Retail had $81 billion in revenue and $9.4 billion in profit during 2019.

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Security guards stand at the reception desk of the Amazon India office in Bengaluru, India, Aug. 14, 2015. VOA

“This gives Reliance Retail access to long-term capital from the conglomerate, which has a presence in energy, petrochemicals, telecom, textiles, retail, and natural resources,” said Forrester.

Reliance Retail also has a portfolio of over 40 brands, from the midmarket to premium segments and including Hamleys (which the company has acquired for Rs 620 crore) and Marks & Spencer.

“These can provide a boost to the fashion and lifestyle segment, which will be the largest category by online spending in the coming years,” said the report.

Reliance launched its mobile business at the end of 2015, and by April 2019, it had over 300 million mobile subscribers a” making it the third-largest player in a short span of time.

Jio is building on these mobile subscribers by investing in related services to create an ecosystem that gives customers access to rich content and payments options.

This ecosystem will be available for Reliance Retail to build on.

To compete with Amazon and Flipkart, Reliance will have to significantly improve the customer experience, both in stores and on its online channel, because discounts and cashbacks will not generate loyalty for online customers a” as we saw in the Paytm Mall case.

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“Removal of discounts may lead to a significant loss of buyers from the platform. The positioning of the Reliance platform and its fulfilment will play a critical role in the fight against Amazon and Flipkart,” emphasised the Forrester report.

The eCommerce competition in India remains fierce.

Amazon has been the most popular online retailer since it surpassed Flipkart in 2016, although Flipkart is still the single-largest online retailer, with 31.9 per cent market share in 2018 (38.4 per cent if you include Myntra and Jabong), closely followed by Amazon at 31 per cent. (IANS)