Leaked Record: Amazon Sees Surge in Sales of Cheaper Items

• Sales of low-cost goods on Amazon are growing thanks to faster delivery speeds, according to an Amazon executive.
• Sales of essentials on Amazon are growing 50% faster than sales of other products.
• The company has regionalized its delivery network to provide faster and cheaper delivery.

Sales of cheaper goods are growing Amazon.

During a recent internal all-hands meeting, Amazon’s Retail CEO Doug Herrington said the convenience products business, which includes health, beauty and grocery products, is “growing 50% faster than the rest of the stores,” according to a recording of the event obtained by Business Insider.

The growth is primarily driven by faster delivery speeds, as people tend to spend more and shop more often when orders arrive quickly, Herrington said. More than 50% of essential items are now delivered same or next day, he said.

“It’s really given a boost to our grocery and convenience business,” Herrington said, referring to faster delivery speeds. “And these are particularly inexpensive essentials that most households buy every week.”

Amazon is investing heavily to make its warehouse and logistics network more regional. The goal was to not only speed up deliveries, but also make offering faster delivery less costly for the company.

No more “Shit”

Reducing costs helps Amazon offer cheaper products that often generate lower profits. This is a marked departure from the company’s previous strategy of limiting sales of such products. Amazon used to call these products internally “CRaP” or “can’t make a profit” because their delivery was relatively expensive and less profitable.

Similar stories

Amazon record profit in recent years, along with radical cost reduction and major 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 fast on the back of low-cost goods. Shein, for example, is expanding its operations by selling more essentials such as toothpaste, skin care products and toys, Reuters reports.

An Amazon spokesman declined to comment.

“Perfect accommodation”

During a recent general meeting, Herrington said Amazon’s deliveries have become faster and cheaper after the company redesigned its warehouse network to serve smaller regions. Amazon now has more warehouses assigned to customers, allowing it to fulfill orders faster.

As a result, Amazon was able to lower its “cost of serving” per order for two years in a row while achieving its fastest delivery speeds for Prime shipments this year, Herrington added.

“We call this effort ideal placement,” Herrington said.

In October, Amazon CEO Andy Jassy said the company had been “maniacally” looking to lower the cost of service in recent years. This is a real competitive advantage, he says, because Amazon can now afford to cost-effectively sell products at lower prices.

“There’s a saying we’ve used many times over the years: It’s easy to cut prices, but it’s much harder to afford to cut prices,” Jassy said on a call with analysts.

“Real Positivity”

On a call with analysts last month, Jassy added that the rise in lower-priced goods is a “real positive” because it is based on faster delivery speeds. According to him, this usually leads to an increase in customer loyalty, order frequency and purchase volume.

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

Brian Olsavsky, Amazon’s chief financial officer, added that the strong growth in sales of 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 since its most loyal Prime member base is growing at a slower rate.

“While growth in these categories represents a negative shift in the profit mix from a profit perspective, it increases customer loyalty, purchase frequency and increases basket size, which is important if Prime HH’s overall U.S. membership base is growing,” Mahaney wrote.

Amazon is doubling down on these efforts. At a recent general meeting, Herrington said Amazon is investing in new warehouse robotics technology that could further improve packing speeds. The company is also expanding its rural network and drone delivery service, he said.

“The biggest thing is that customers love our faster speeds, and we know they love it because they shop more,” Herrington said.

Do you work for Amazon? Have a hint?

Contact reporter Eugene Kim via encrypted messaging apps Signal or Telegram (+1-650-942-3061) or by email ([email protected]). Contact us using notworking device. Visit Business Insider a guide to sources for others tips for secure information exchange.