Amazon CEO: ‘Customers Continue to Trade Down on Price’

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Glenn Taylor

Fri, Aug 2, 2024, 1:52 PM 4 min read

“We’re seeing lower average selling prices, or ASPs, right now because customers continue to trade down on price when they can,” Jassy said in the company’s earnings call. “More discretionary higher-ticket items like computers or electronics or TVs, are growing faster for us than what we see elsewhere in the industry, but more slowly than we see in a more robust economy, and our continued faster delivery speed is earning us more of our customers’ everyday essentials business.”

Chief financial officer Brian Olsavsky said Amazon expects the consumer spending trends to continue into the third quarter.

For the quarter, net sales are projected to be between $154 billion and $158.5 billion, which would mark year-over-year growth between 8 percent and 11 percent. Operating income is expected to be between $11.5 billion and $15 billion, compared with $11.2 billion the prior-year quarter.

Analysts had called for $158.2 billion in revenue and $15.3 billion in operating income, according to the average analyst polled by LSEG.

Jassy said Amazon’s seller fees, which have been a source of controversy among some Amazon sellers, were lower than expected.

“Lowering apparel fees has spurred substantial year-over-year unit growth in apparel and the incentive we’ve given sellers to send their items to multiple Amazon inbound facilities so they can save money where they save us effort and money is getting more traction than we’d even hoped,” Jassy said.

Amazon’s fulfillment capabilities are currently being ramped up to handle fourth-quarter holiday volumes across its regionalized network, Olsavsky said. Earlier in the week, the company announced that more than 5 billion items now arrive the same day or next day—up more than 30 percent year-over-year.

According to data from supply chain consulting firm MWPVL International, Amazon expects to open 170 more warehouses across the U.S. in the future. Of the future facilities, 103 are expected to be delivery stations for packages, which are smaller, local distribution centers strategically positioned for last-mile delivery.

Yet despite all this network scaling, Amazon still has the goal to lower its “cost to serve”— which is the cost to get a product from Amazon to a customer.

“One of the great things about regionalization was it not only took our costs to serve down, but it meaningfully changed the speed with which we’re able to get items to customers,” Jassy said, highlighting multiple opportunities where Amazon is slashing costs.

“Another example of that is regionalizing our inbound network, which is also going to lower our cost to serve and get items more close to end users and diminish the amount of time it takes to get them to customers,” Jassy said. “We have a number of things that we’re working on that allow us to combine more units per box, which lowers our costs as well and a lot of customers like that better because it’s better for the environment, having more units per box.”

Jassy noted that lowering these fulfillment costs will better help the company adhere to its customer base that continually seeks out cheaper products.

“There are a lot of lower ASP items there that we don’t stock because they’re not economic to stock with our current cost to serve,” Jassy. “But as we work hard to make progress like we are on lowering our cost to serve, that allows us to add more selection.

The reacceleration of Amazon’s cloud business remains a major positive for the company. The Amazon Web Services (AWS) unit grew 19 percent from a year earlier to $26.3 billion, surpassing expectations of $26 billion. Amazon said AWS generated $9.3 billion in quarterly operating income, or 63 percent of the companywide total.

Amazon’s other rapidly growing segment, advertising, grew sales 20 percent to $12.77 billion during the quarter, falling just shy of estimates.

Jassy also lauded the e-commerce giant’s advancements in generative AI, highlighting shopping assistant Rufus, as well as Project Private Investigator, a recently launched technology deployed across the company’s North American fulfillment centers that uses a combination of generative AI and computer vision to uncover defects before products reach customers.

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