Leaked recording: Amazon sees an increase in sales of cheaper items

• Amazon’s sales of low-priced items are rising, driven by faster delivery speeds, its executive says.
• Amazon’s sales of essential products are growing 50% faster than other products.
• The company has regionalized its delivery network to achieve faster and cheaper deliveries.

Sales of cheaper items are increasing Amazon.

During a recent internal all-hands meeting, Amazon’s retail CEO said Doug Herrington said its daily essentials business, including health, beauty and grocery items, is “growing 50% faster than the rest of the retail business,” according to a recording of the event obtained by Business Insider.

The growth is mainly driven by faster delivery speeds, as people tend to spend more and shop more often when orders come in quickly, Herrington said. More than 50% of daily essentials are now delivered same or next day, he added.

“It’s really boosted our groceries and everyday essentials,” Herrington said, referring to faster shipping speeds. “And these are mainly the low-priced daily necessities, the things that most households buy every week.”

Amazon has invested heavily to make its warehouse and logistics network more regional. The goal was not only to speed up deliveries, but also to make it cheaper for the company to offer faster deliveries.

No longer “CRaP”

Lower costs help Amazon offer cheaper products, which often come with smaller profit margins. This is a notable shift from the company’s previous strategy of reducing sales of such products. Internally, Amazon used to call these products ‘ ‘CRaP’ or ‘cannot realize a profit’ because they were relatively expensive to ship and less profitable.

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from Amazon record profits in recent years drastic cost savings and large layoffs also contribute to the new approach. The change could potentially help Amazon better compete with Chinese e-commerce upstarts Temu and Shein, which are growing rapidly on low-cost items. For example, Shein is expanding to sell more daily essentials such as toothpaste, skin care and toys, Reuters reported.

Amazon’s spokesperson declined to comment.

‘Perfect placement’

At the recent all-hands meeting, Herrington said Amazon deliveries have become faster and cheaper after the company redesigned its network of warehouses to serve smaller regions. Now Amazon has allocated more warehouses to nearby customers, allowing faster order fulfillment.

As a result, Amazon has managed to reduce the “cost to serve” on every order two years in a row, while achieving the fastest delivery speeds for Prime shipments this year, Herrington added.

“We call that effort perfect placement,” Herrington said.

In October, Amazon CEO Andy Jassy said the company has been “maniacal” about cutting service fees in recent years. It’s a real competitive advantage because Amazon can now afford to sell cheaper items in an economical way, he said.

“There’s an expression we’ve used a lot in recent years: It’s easy to lower prices, but it’s much harder to afford lower prices,” Jassy said on a call with analysts.

‘Really positive’

During last month’s analyst call, Jassy added that the growth of lower-priced items is “really positive” because it is based on faster delivery speeds. He said this usually leads to growth in customer loyalty, order frequency and purchase volume.

“We see the opportunity to unlock entirely new elements of consumer spending,” Jassy said.

Brian Olsavsky, Amazon’s CFO, added that the strong growth in daily essentials is a positive sign that Amazon is becoming part of consumers’ daily shopping habits.

Evercore analyst Mark Mahaney wrote in a recent note that the shift is important for Amazon, especially because its most loyal Prime member base grows at a slower pace.

“While growth in these categories represents a negative mix shift in terms of margins, it increases consumer loyalty, shopping frequency and basket size – important as the overall Prime HH membership in the US matures,” Mahaney wrote .

Amazon is doubling down on these efforts. Herrington said at the recent all-hands meeting that Amazon is investing in new warehouse robot technology that can further improve packaging speed. It is also expanding its nationwide network and drone delivery service, he said.

“Most importantly, customers like our faster speeds and we know they enjoy it as they shop more,” Herrington said.

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