- Amazon is ramping up for the holiday season and it is expected to hit record new sales despite the aggressive competition
As we are entering the holiday season, all eyes are on Amazon. Amazon is expected to hit record new sales records despite the aggressive pricing strategies set by its rivals like Walmart and Target. In order to fend off its rivals, Amazon is also taking aggressive steps to win over consumers.
For example, Amazon Prime users can now receive over 10 million in the U.S. with one-day shipping. And Amazon also lowered the prices for add-on products.
With Shipt, Target expanded on its same-day delivery and it is now accounting for over a third of its online orders. And Walmart’s online grocery business has been performing solidly. But Amazon countered that move by dropping the $14.99 monthly fee for AmazonFresh grocery delivery service. Prime subscribers can now receive unlimited same-day grocery delivery in the areas that support AmazonFresh.
With these changes, Amazon will be spending a lot more on logistics. To support the one-day shipping feature, Amazon was originally planning to spend about $800 million more on fulfillment in the second quarter. Amazon spent more than that amount and even more during the third quarter, according to Motley Fool. And Amazon chief financial officer Brian Olsavsky revealed that the company will be spending $1.5 billion for fulfillment initiatives during the fourth quarter.
The Motley Fool also cited a recent study from Profitero with details about how Amazon’s algorithms are designed to beat the prices of its rivals for the holiday season. Previously, Amazon avoided always competing on prices. Walmart’s prices have been about 4% higher on average while Target was 10% higher. Although the prices are higher at Target, the Minnesota-based brick-and-mortar retailer recently launched a new rewards program so shoppers would receive discounts on future purchases.
With the higher costs, Amazon is expecting an operating profit of between $1.2 billion and $2.9 billion for the quarter. This is substantially lower than the $3.79 billion operating profit reported in the fourth quarter last year. For the three months ending in September, Amazon had reported that its shipping costs alone hit $9.6 billion — which was up 46% from the prior year.
“Customers love the transition of Prime from two days to one day. They’ve already ordered billions of items with free one-day delivery this year,” said Amazon CEO Bezos. “It’s a big investment and it’s the right long-term decision for customers.”
Bezos also pointed out that this set up is better for the environment since the products will be shipped from fulfillment centers closer to the consumer.
Black Friday will be falling on November 29 this year, six days later than last year. So Amazon is setting up an eight-day Black Friday sale that will be beginning one week earlier than that. The sales will start on November 22.