Amazon.com Adds Capacity to Keep up with Strong Q1 Growth Rates
By Ina Steiner
Amazon.com's net sales increased 38% year-over-year in the first quarter of 2011 to $9.86 billion, and worldwide unit growth was up 51% (including digital sales). North America segment sales (U.S. and Canada) were $5.47 billion, up 45% from first quarter 2010.
Amazon Chief Operating Officer Tom Szkutak said during a conference call with analysts that if the growth rate continues, Amazon would increase the number of fulfillment centers it is building this year. He also said growth of Amazon's digital business was the biggest factor in the acceleration in unit growth rate from 43% in the fourth quarter of 2010 to 51% in the first quarter 2011.
Amazon's net income decreased 33% to $201 million in the first quarter compared with net income of $299 million in first quarter 2010, and "adding capacity" was a term heard throughout the call. Szkutak said, "we are seeing, as you'd expect with this great growth that we're experiencing, there is just more demand for fulfillment capacity both from our core retail business and Fulfillment by Amazon."
One analyst asked about the competitive threat posed by eBay and other companies in terms of offering fulfillment services. Szkutak said Amazon's operations team continues to look at ways to improve delivery speed as well as improving its cost structure over time. They're always looking at better ways to serve customers, there's a number of ways they do that, he said "It's a constant focus."
Some Key Metrics
Amazon.com revealed some key metrics of particular interest to sellers during its post-earnings release conference call:
- Active customer accounts: exceeded 137 million;
- Worldwide active seller accounts: more than 2 million;
- Seller units as a percentage of total units: 33%;
- Worldwide unit growth: 51%.
Amazon.com added 13 fulfillment centers last year and had announced it would add another 9 centers in 2011 - five in North America (including four in the U.S.) and four international. However, Amazon.com's CFO said Amazon.com would build more than nine fulfillment centers this year if growth rates continue.
Excluding the $144 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales would have grown 36% compared with first quarter 2010.
International segment sales (U.K., Germany, Japan, France, China and Italy) were $4.39 billion, up 31% from first quarter 2010. International revenue growth excluding foreign exchange was 27%, and it would have been 32% had it not been for the earthquake disaster in Japan, according to Szkutak. There was a pretty sizable slowdown in Japan for a few weeks ending the quarter as a result of the disaster, he said; growth rates have picked up, but are not at the rates they were previous to the events.
Worldwide Media sales grew 15% to $3.96 billion (or 13% ex-FX), and worldwide Electronics and Other General Merchandise sales grew 59% to $5.59 billion (or 57% ex-FX).
Amazon.com gave second quarter 2011 guidance, saying it expects net sales to be between $8.85 billion and $9.65 billion, or to grow between 35% and 47% compared with second quarter 2010.
When asked about Amazon.com's advertising business, Szkutak said "it's still very early." The team has done a fantastic job growing the business, he said, and "we'll have to wait and see what we do further with that business. It's something the team has done a great job, and it allows us another way to have great low prices for customers."
As far as the advertising Amazon conducts for its own businesses, Szkutak said the two primary vehicles are the Associates channel (affiliate program), and sponsored search.
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About the author:
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to email@example.com.
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