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Amazon Says Consumer Spending Remains Strong Despite High Inflation

Logan by Logan
July 29, 2022
in Business
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Amazon Says Consumer Spending Remains Strong Despite High Inflation

Image Source- Getty Images

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Walmart and Best Buy both reduced their profit forecasts for the second quarter and the entire year earlier this week, raising concerns about how rising inflation was affecting consumer spending throughout the retail industry.

Following Walmart’s statement, shares of rival retailers including Amazon, Target, and Macy’s also decreased amid concerns that they might experience similar difficulties.

But on Thursday, Amazon officials claimed that the e-commerce behemoth hasn’t experienced the same inflationary effects that are harming other businesses. CFO Brian Olsavsky answered a question about whether inflation has affected consumer spending during a press conference to present Amazon’s second-quarter earnings.

“We have not seen anything yet,” Olsavsky said. “We saw demand increase during the quarter and we had a very strong June.”

Following a period in which its fulfilment and logistics capabilities were taxed by a pandemic-driven frenzy of online orders, Olsavsky said that Amazon made headway in replenishing its product inventory and that delivery speeds are now mostly back to normal. He proposed that consumers became aware of the improvement and thus made more purchases during the quarter.

Image Source- Daily Hindustan News

Consumers who were fearful of inflation showed no evidence of reducing their purchasing, but it wasn’t enough to help Amazon’s e-commerce business grow again. As more customers visited physical stores, online sales fell by 4% year over year, contributing to a general slowing in e-commerce activity from epidemic highs.

Amazon expressed optimism for the upcoming months. Amazon stated that it anticipates sales for the current quarter to be between $125 billion and $130 billion, growing by 13 percent to 17 percent. Sales of $126.4 billion are anticipated by analysts, according to Refinitiv. The stock increased more than 13% after hours as a result of this and revenue that exceeded forecasts.

Compared to Walmart, Amazon has a distinct advantage.

The big-box retailer claimed on Monday that consumers were spending more on necessities like food and less on items like gadgets and clothing as a result of consumers’ need to tighten their budgets due to rising food and petrol prices. As a result, more expensive things began to accumulate on the shelves. In response, Walmart aggressively reduced unsold merchandise, which reduced its profit margins.

According to Andrew Lipsman, principal analyst at eMarketer, Walmart is “heavily driven” by lower income consumers who are more susceptible to inflation, whereas Amazon is supported by a broader mix of moderate and upper income consumers.

“I think Walmart at this moment in time has a much, much tighter spread and is going to be more susceptible to these impacts of inflation,” Lipsman said.

Analyst Tom Forte from D.A. Davidson agrees. “The core consumer at Amazon is more well off than the consumer at Walmart, and that seems to be enabling it to outperform Walmart,” said Forte.

Additionally, Amazon has a built-in customer base of more than 200 million customers who are eager to make additional purchases. Consumer Intelligence Research Partners, a market research firm, has found that Prime customers of Amazon’s discount program tend to spend more and place more orders than non-Prime members.

According to Amazon, Prime subscribers don’t now seem to be canceling their subscriptions in order to save money in the face of inflation.

“We continue to be pleased with the membership levels and retention in our Prime program,” Olsavsky said. “It was as good or better than we had expected.”

Tags: amazonAmazon says consumer spending remains strongAmazon Says Consumer Spending Remains Strong Despite High Inflationbucking broader retail gloomConsumer spendingInflationInflation In US
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