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Amazon Poised to Benefit This Season as Inflation Fears Ease

Stock Markets Nov 23, 2022 15:08
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2/2 © Bloomberg. An Amazon delivery truck in San Francisco. Photographer: David Paul Morris/Bloomberg 2/2
 
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(Bloomberg) -- Amazon (NASDAQ:AMZN) spooked investors last month when it predicted the slowest holiday season growth in its history. Now there are signs—albeit tentative—that the world’s largest e-commerce company could have a somewhat merrier Christmas than anticipated.

Inflation has eased in recent weeks and, according to survey results released Sunday by Jefferies Financial Group, US consumers see prices moderating in all categories except rent and groceries. Americans continue to spend despite rising interest rates, with October retail sales increasing the most in eight months. Analysts, meanwhile, expect Amazon to hit the higher end of its fourth-quarter forecast, with revenue growing 6.7% to $146.6 billion, according to data compiled by Bloomberg. That’s still a slowdown from last year’s 9.4% growth but hardly a disaster. 

Asked about Amazon’s holiday prospects during an earnings call in October, Chief Financial Officer Brian Olsavsky expressed measured optimism but acknowledged that various headwinds—inflation, rising interest rates, the war in Ukraine—made prognostication  unusually difficult this year. Indeed, two data tracking firms have decidedly different forecasts. Last week, Insider Intelligence said it expected online sales in November and December to rise 12% from a year earlier and faster than last year’s growth of 10.4%. Yet in October, Adobe Inc. predicted an increase of just 2.5%, a marked slowdown from its 8.6% growth tally in 2021.

The picture will become somewhat clearer following the so-called Cyber Five period that kicks off on Thanksgiving and runs through Black Friday and Cyber Monday. Though Americans have been spreading their holiday shopping over a longer period in recent years, those five days are expected to account for about a sixth of the season’s buying.

“We’ll know after Cyber Monday if shoppers are really cutting back or if they’re just waiting for big discounts,” said Dan Brownsher, chief executive officer of Channel Key, an e-commerce consulting firm with 70 clients that generate more than $100 million in combined annual revenue. “Cyber Five is the prime time, when all the deals are running and all the traffic is happening. We just don’t know yet.”Despite the layoffs in technology, finance and real estate, most people are working and hungry for bargains, said Andrew Lipsman, an Insider Intelligence analyst. Retailers got away with meager discounts of 10% to 20% last year because consumers were warned about supply-chain issues and eager to buy whatever they could find. This year they’ll see discounts in the range of 30% to 40% since retailers are competing with one another to clear out inventory, he said.

“We have entered a heavier discounting environment, and consumers are deal-seeking,” Lipsman said. “Consumers are rankled by inflation, but they still have disposable income.”

For Amazon merchants, who account for more than half of the company’s online sales, much depends on what they sell. Some categories aren’t expected to do especially well this holiday season. Adobe, for one, predicts that online apparel sales will suffer because customers are returning to the stores, where they can see garments and try them on. 

Electronics could be another casualty, in part because many Americans loaded up on televisions, computers and accessories during the pandemic and aren’t ready to upgrade.  

Bernie Thompson, chief technology officer at Plugable in Redmond, Washington, said searches for laptop docking stations and other products were down about 20% so far in November compared with the previous month. This could be the first time his Amazon sales decline since he began selling on the platform in 2009, he said. Thompson is cutting prices and increasing his advertising budget to try to juice sales.

“We expected to have a whip effect in consumer electronics from scarcity to glut, but it happened a lot faster than anyone thought,” he said. “None of this is disastrous. So far it’s just difficult.”

Jason Boyce, whose Avenue7Media helps about 100 businesses sell online, said most of his clients carry premium products and haven’t experienced a drop in demand. One of the bestselling products is a mattress topper, sales of which continue to grow despite competing products on Amazon that are priced much lower.

“Our motto is price high and justify,” he said. “I’m just not seeing the signs of the pending downturn like we do in the news now.”

©2022 Bloomberg L.P.

Amazon Poised to Benefit This Season as Inflation Fears Ease
 

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