While online giant Amazon has ended its fiscal year on a positive note, there is now a "clear divergence" in the performance of its top and bottom lines, "with the latter accelerating and the former decelerating," a leading industry analyst has said.
Neil Saunders of GlobalData Retail was commenting on the back of results that showed Amazon's net income rising by 63.1% and operating income growing by 78.0%.
Much of this growth was driven by AWS, its cloud computing arm, where operating income rose 61%.
However, Saunders added that while the firm's "profit lines look rosy, the sales line presents a mixed bag. The slowdown in product growth is now tangible and although an 8.2% uplift is strong compared to many retailers, by Amazon’s standards it is a weak performance.
"In our view there are several dynamics at play here. First, is the maturity of Amazon’s operation: Amazon is now a massive retailer and it is simply unrealistic to expect it to keep on growing at its historic pace. However, more concerningly, this maturity is also coinciding with a period of rising competition.
"Retailers like Target and Walmart have invested heavily in their online operations and pulled out all the stops this holiday season. Our data show that they made solid customer gains, and some of that dinted Amazon’s growth. In our view, the gap between Amazon and the rest is now narrowing."
Whole Foods
With regard to Whole Foods, Saunders notes that sales at Amazon's physical stores dropped by 2.7% last year, mainly due to the performance of its grocery division.
"The investment in lower prices partly explains this, but it does not account for the bulk of the decline," he says. "In our opinion, much of this is because Whole Foods’ proposition is simply not up to scratch. Basics and commodity products still cost way more than at rivals like Target, and this is one of the reasons perceptions that Whole Foods is needlessly expensive have persisted. Such expense is not justified by store experience nor by customer service, both of which remain lackluster.
"Arguably, a holiday period that coincided with strong consumer finances should have been fertile ground for Whole Foods to thrive. However, very little effort was made to entice or enthrall customers. Aside from fresh counters, the festive product line up was incredibly poor with a noticeable lack of treats and interesting items. As a result, many consumers simply went elsewhere."
Despite these "niggles", as Saunders called them, GlobalData remains positive about the online giant's future performance.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
