Amazon may raise the price of Prime
January 30, 2014 03:55 PM
Amazon Prime may soon be pricier.
Amazon.com Inc. announced yesterday along with its quarterly and 2013 financial results that it was considering an increase in the current $79 price of Prime by $20 to $40.
The e-retailer made the announcement yesterday as it disclosed a 26% increase in revenue in North America in the fourth quarter of 2013 and a 28% increase for the full year.
Amazon has not raised the price of Prime since introducing the two-day free shipping program nine years ago, while the number of items eligible for Prime shipment has increased from 1 million to 19 million, chief financial officer Tom Szkutak told analysts yesterday. “With the increased cost of fuel, transportation as well as the increased usage among Prime members, we’re considering increasing the price of Prime between $20 to $40 in the U.S.” He did not say when Amazon might institute the price increase.
Amazon says it has “tens of millions” of Prime members worldwide, but has not provided more details. For $79 a year, Prime members get two-day free shipping on eligible items plus other perks, including access to a growing catalog of movies and TV shows that can be streamed to their TV sets via Prime Instant Video. That selection grew from 33,000 to 40,000 movies and TV episodes in 2013, Amazon says.
Just talking about a possible price increase may lead more consumers to sign up for Prime at the current price, observed Matt Nemer, an analyst at Wells Fargo Securities LLC. ” We see the Prime membership price increase of $20-40 as a positive as it indicates demand is certainly strong enough to sustain higher prices and will help cover increased fuel/transportation costs and could drive an acceleration in new sign-ups ahead of the price hike,” Nemer wrote in a note to clients.
Prime customers are valuable to Amazon because they buy more than other shoppers. A report last year from financial data firm Morningstar Inc. and Consumer Intelligence Research Partners LLC estimated that the average Prime member spent $1,200 annually, including the $79 membership fee, compared with $600 for the average non-Prime Amazon customer.
Szkutak also disclosed that Amazon sent gift cards to some customers whose shipments were delayed in advance of Christmas, but did not provide details. The high volume of online orders late in the holiday season overwhelmed UPS’ ability to deliver all packages by Christmas, UPS conceded in its earnings call yesterday.
Amazon increased the number of warehouses it operates by seven last year, Szkutak said. But he said the square footage of the e-retailer’s distribution centers rose by more on a percentage basis as it consolidated older, smaller facilities into new ones. Amazon currently operates 54 distribution centers in the U.S., according to Scot Wingo, CEO of online marketing firm ChannelAdvisor Corp., a number that’s been steadily rising as Amazon seeks to move inventory closer to consumers so it can offer fast delivery at a lower cost. The global number of distribution centers is believed to exceed 100. Amazon increased its spending on fulfillment by 29% in the fourth quarter.
Sales increased 22% year over year in 2013 for Amazon.com Inc., to approximately $74.45 billion. The e-retailer said that Q4 sales increased 20%, to $25.59 billion.
Amazon is No. 1 in Internet Retailer’s 2013 Top 500 Guide, as well as the Europe 500.
For the fourth quarter ended Dec. 31 Amazon reported:
• Net sales of $25.59 billion, a 20.3% increase from $21.27 billion in the same quarter in 2012.
• North American net sales of $15.33 billion, up 25.9% from approximately $12.18 billion for the fourth quarter of 2012. North America accounted for about 59.9% of sales in the fourth quarter of 2012, compared with 57.3% in the same period in 2012.
• International net sales totaled approximately $10.26 billion, up 12.9% from $9.09 billion in 2012. International accounted for about 40.1% of sales in the fourth quarter, compared with approximately 42.7% in 2012.
• Worldwide sales of books, music and videos increased 11.0% to about $7.23 billion from $6.51 billion, while electronics and other general merchandise increased 23.0% to $17.13 billion from $13.93 billion in the same period in 2012.
• Services sales, including Amazon Web Services, a provider of data storage and computing capacity to companies of all kinds, increased to $1.23 billion from $820 million, a 50% increase.
• Net income of $239 million compared with net income of $93 million in the same period in 2012.
• Spending on marketing increased 32.9% to about $1.13 billion from $850 million in the fourth quarter of 2012.
• Spending on technology and content increased approximately 38% to about $1.86 billion from nearly $1.35 billion.
• Spending on fulfillment increased 29% to approximately $2.92 billion from $2.26 billion.
• General and administrative spending increased 35.3% year over year to $318 million from $235 million.
Amazon says today that 20 airlines allow consumers to use Kindles during flights, and that members of its Prime $79-per-year two-day shipping program have access to more than 40,000 streamed movie and titles, up from 33,000.
"It's a good time to be an Amazon customer. You can now read your Kindle gate-to-gate, get instant on-device tech support via our revolutionary Mayday button, and have packages delivered to your door even on Sundays," says Jeff Bezos, founder and CEO of Amazon.com.
For the full year 2013, Amazon reported:
• Net sales of about $74.45 billion, a 21.9% increase from $61.09 billion from 2012.
• North American net sales of $44.51 billion, up 27.9% from $34.81 billion from 2012.
• International net sales totaled about $29.94 billion, up 13.9% from $26.28 billion in 2012.
• Worldwide sales of books, music and videos increased 8.9% to approximately $21.72 billion from $19.94 billion, while electronics and other general merchandise increased 26.3% to $48.80 billion from $38.63 billion in the same period in 2012.
• Services sales, including Amazon Web Services, increased to $3.93 billion from $2.52 billion, a 56% increase.
• Net income of $274 million compared with net loss of $39 million in 2012. • Spending on marketing increased 30.4% to $3.13 billion from $2.40 billion in 2012.
• Spending on technology and content increased 44.1% to $6.57 billion from $4.56 billion.
• Spending on fulfillment increased 33.8% to $8.59 billion from $6.42 billion.
• General and administrative spending increased 26.1% year over year to $1.13 billion from $896 million.
For the first quarter of 2014, Amazon says it expects net sales of between $18.2 billion and $19.9 billion.