Amazon to Further Expand Its Physical Retail Presence?
Technology stocks took some serious losses in the recent market sell-off. Amazon.com, Inc. (NASDAQ:AMZN) happened to be one of them. After reaching $1.0 trillion in market capitalization in September 2018, AMZN stock started a downward journey, plunging more than 20% in just a few months.
But now, Amazon stock is making a comeback. And there’s a good reason for it.
Earlier this week, The Wall Street Journal reported that Amazon has plans to expand its Whole Foods stores across the U.S. (Source: “Amazon Plans to Add Whole Foods Stores,” The Wall Street Journal, December 31, 2018.)
Why is that good news?
Well, those that follow AMZN stock would know that the company acquired Whole Foods Market Inc. back in 2017 for around $13.5 billion. The acquisition of the premium grocery store chain created a bunch of new opportunities for the online retail giant.
For instance, “Amazon Prime” members can get discounts when shopping at Whole Foods stores. The company also offers “Prime Now,” a two-hour delivery service to Amazon Prime members in more than 60 cities. The service allows members to pick up groceries they ordered online at Whole Foods locations in as little as 30 minutes in nearly 30 cities.
Sources told The Wall Street Journal that “Whole Foods employees have visited potential retail spaces in parts of Idaho, southern Utah and Wyoming, where the grocer doesn’t have stores now.” (Source: Ibid.)
Furthermore, some of the retail locations they visited were around 45,000 square feet, making them bigger than the average Whole Foods store.
The implication here is quite clear. With more Whole Foods locations, Amazon’s Prime Now service would be appealing to a broader customer base. And a larger retail space per store would help Amazon accommodate the delivery and pickup services from its online orders.
Investors liked this move as Amazon stock went up 1.6% when The Wall Street Journal reported the news on Monday, December 31. After the stock market’s New Year’s Day break, AMZN shares continued to climb 2.5% on Wednesday, January 2.
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Still, this report wasn’t the start of AMZN stock’s latest uptrend. In fact, Amazon stock has been climbing since December 26. The catalyst was obvious—a record-breaking holiday season.
Amazon doesn’t like to give the exact figures, but the year-over-year comparisons are still quite impressive. In a press release on December 26, the company said that “Customers purchased millions more Amazon Devices this holiday season compared to last year.” (Source: “Amazon Customers Made This Holiday Season Record-Breaking with More Items Ordered Worldwide Than Ever Before,” Amazon.com, Inc., December 26, 2018.)
These devices include the “Echo,” the all-new “Echo Dot,” and “Fire TV Stick 4K with Alexa Voice Remote,” among others.
Speaking of “Alexa”—a virtual assistant developed by Amazon—customers have actually been using this assistant to make purchases. The company said that “customers use of Alexa for shopping more than tripled this year compared to last year.” (Source: Ibid.)
The holiday season was also a big win for Amazon’s Prime membership. As always, Amazon does not reveal how many Prime members it actually has. But the company did say that during this holiday season, “tens of millions of people worldwide started Prime free trials or began paid memberships.”
People have different reasons to sign up for an Amazon Prime membership, which costs $119.00 a year in the U.S. But in the holiday season, the biggest incentive to try Prime is to take advantage of the free same-day, one-day, or two-day shipping on numerous products on Amazon, and the free two-hour delivery with Prime Now.
The company revealed that in just the U.S., “more than one billion items shipped for free this holiday with Prime.” (Source: Ibid.)
In terms of the number of items ordered worldwide, this was Amazon’s strongest holiday season ever.
For a company that’s already the market leader in online retail, few things are better than a growing customer base. Since those strong holiday season results were released, Amazon stock has surged 14%.
What we have here is an e-commerce giant that’s rapidly growing its business. While Amazon declined to comment on its new store construction, I wouldn’t be surprised if the company opens up additional Whole Foods locations across the country. And that could further boost the appeal of its Prime membership.
Of course, Amazon stock is still down quite a bit from its high in September 2018. But if the company can keep its growth momentum going in 2019, it could give investors a reason to warm up to AMZN stock again.