Amazon says consumer demand is still strong despite wider retail discouragement

An Amazon delivery worker pulls a cart full of packages during the annual Prime Day promotion in New York City, June 21, 2021.

Brendan McDermid | Reuters

Earlier this week, walmart as well as Best Buy both lowered their earnings forecasts for the second quarter and full year, raising concerns in the retail sector that soaring inflation is affecting consumer spending.

Shares of other retailers, incl. Amazon, Target as well as Macy all dropped following Walmart’s announcement of fears they would face similar headwinds.

But on Thursday, Amazon executives suggested the e-commerce giant was not facing the kind of inflationary fallout that hurts other retailers. During the Amazon press conference second quarter resultsCFO Brian Olsavsky was asked if inflation has changed how consumers spend their money.

“We haven’t seen anything yet,” Olsavsky said. “We saw an increase in demand during the quarter and we had a very strong June.”

Amazon has made progress in getting items back into stock, Olsawski said, and delivery speeds have largely returned to normal after a period when its fulfillment and logistics operations were hampered by the pandemic-driven online order flood. He suggested that consumers noticed the improvement and, in turn, bought more items during the quarter.

Inflation-weary consumers showed no signs of spending cuts, but it still wasn’t enough to revive Amazon’s e-commerce business. Online sales were down 4% year-on-year as many shoppers returned to brick-and-mortar stores, resulting in a broader slowdown in e-commerce activity compared to the peaks of the pandemic.

Amazon is optimistic about the future. In the current quarter, Amazon said it expects sales to be between $125 billion and $130 billion, representing a 13% to 17% increase. Analysts are forecasting sales of $126.4 billion, according to Refinitiv. This, along with better-than-expected revenue, saw the stock rise more than 13% after hours.

Amazon has a particular advantage over its rival Walmart.

On Monday, a major retailer said rising food and gas prices have forced consumers to tighten their belts, forcing them to spend more on essentials like food and less on areas like electronics and clothing. This meant that higher priced items began to pile up on the shelves. In turn, Walmart is aggressively discounting unnecessary items, which reduces its profit margins.

According to Andrew Lipsman, principal analyst at eMarketer, Amazon is supported by a large number of middle- and high-income consumers, while Walmart is “heavily driven” by lower-income consumers who are more sensitive to inflation.

“I think at the moment Walmart has a much tighter spread and will be more susceptible to the impact of inflation,” Lipsman said in an interview.

Tom Forte, an analyst at DA Davidson, agreed. “The mainstream consumer at Amazon is better off than the consumer at Walmart, and that seems to allow it to outperform Walmart,” said Forte, who has a buy rating on Amazon stock.

Amazon also has a built-in consumer base of over 200 million users who are willing to buy more. Members of the Amazon Prime discount club tend to spend more and order more often than non-Prime members, according to the marketing research firm. Consumer Intelligence Research Partners.

So far, Amazon has said that Prime members don’t appear to be giving up their memberships to cut costs in the face of inflation.

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