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Amazon Has a Major Edge Over Walmart: Wealthy Customers

Amazon Inc.’s strong quarterly performance on Thursday indicated yet another sign of a split in shopping patterns between more and less affluent Americans dealing with the highest inflation in four decades.

On Monday, rival Walmart Inc., which caters to a more cost-conscious customer, slashed its second-quarter profit forecast, blaming the shift in consumer spending toward more low-margin food products on apparel and other general merchandise. Gave.

This has led to an inventory buildup that the country’s largest retailer said it would aggressively mark.

In contrast, Amazon, the world’s largest e-commerce retailer, said consumer demand grew despite inflation, helping it report better-than-expected second-quarter earnings and sales and an upbeat forecast for the summer season. has been issued.

Amazon gave a boost in performance to its Amazon Prime customers, who pay $139 a year to get a day or two of free delivery and free Amazon Music and Prime Video.

“Prime members have increased their spending meaningfully since the start of the pandemic,” Amazon CFO Brian Olsavsky said on an investor call Thursday.

“Over that period, we have seen stronger use of Prime benefits by Prime members and greater reliance on Amazon for their shopping and entertainment,” he said.

Earnings from US companies over the past few months show rising fuel and food costs are affecting lower-income Americans more, while those with larger bank accounts are snagging a $50,000 GM truck or a $3,000 Louis Vuitton handbag.

inflation effect

“Honestly, it’s actually Walmart has a lot of inventory … and (that) Walmart caters to the low-income consumer, which is going to be affected a lot by high inflation,” said Brian Yarbrough, a In analyst Edward Jones.

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Multiple surveys show that for Amazon, Prime members, who drive most of its sales volume, are mostly found in wealthy households. A 2016 report by Piper Jaffray showed that more than 70% of households with annual incomes over $112,000 had Prime memberships.

“Amazon (third-party) marketplaces proved to be a distinct advantage in the second quarter given the wide selection and pricing flexibility not available to most traditional retailers,” said Colin Sebastian, analyst at Baird Equity Research, in a note. That made up 57% of Amazon’s unit sales in the spring, up from 55% in the March quarter.

Analysts say it also comes down to the business models of Walmart and Amazon.

While Walmart relies heavily on its 4,700-plus U.S., deep relationships with suppliers to stock them with the right merchandise, Amazon charges a fixed fee from third-party sellers on its marketplace.

“Amazon distributes a significant portion of its overall gross trading volume through third-party vendors,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group.

“In this business, Amazon collects fees for third-party seller services, which we believe are less dependent on the nature of the goods sold,” Benowitz said.

He said it also protects Amazon from changes in consumer spending patterns and may have less impact on profitability than Walmart or other traditional retailers.

Amazon shares rose 14%. Walmart lost about $28 billion in market value after its warning on Monday, and there was a broad sell-off in other retail stocks on Tuesday.

Shares of several major retailers, including Target, Macy’s and Kohl’s, fell after Walmart’s announcement on Monday. Several large consumer companies, including Amazon, McDonald’s and Procter & Gamble, are set to report their quarterly earnings results this week.