Faster delivery is prompting more and more people to turn to Amazon to buy paper towels and other everyday items. It’s a great situation for busy shoppers. It’s a double-edged sword for investors – at least for now. As drugstore chains struggle and close stores left and right, Amazon has positioned itself to fill that void and capture more of the spending on items people might stop to pick up on their way home from work – things like dish soap, nonperishable food and other personal health care products. Like it’s done so many times before since its inception selling books online, Amazon is taking a short-term financial hit to grow its business for these products, with a plan to improve profitability down the road. It’s the Amazon playbook. Investors should trust that it will pay off again this time around. The growing prevalence of one- and same-day delivery has made Amazon a much more convenient to place to shop for everyday essentials. Realize in the morning that you’re running low on dish soap? Amazon can have a fresh bottle of Dawn at your place tomorrow. No need to stop at the drugstore. The problem with that scenario: fulfilling more orders for these items – particularly those with lower price points – has impacted topline growth and squeezed profits, as Amazon’s messy second-quarter earnings last month showed. The report sent the stock tumbling, though it’s now clawed back all those losses. We expect this to be a classic case of short-term pain for long-term gains. “If people buy everyday essentials on Amazon, they’re more likely to buy other products too,” said Jeff Marks, the Club’s director of portfolio analysis. “It may hurt margins now, but Amazon will probably find a way to fix that in the future.” At the end of the day, he added, “It’s about wallet share.” Amazon has positioned itself to capture more of that wallet share through a yearslong effort to speed up delivery for Prime members. On its Aug. 1 earnings call, CEO Andy Jassy said that so far this year, more than 5 billion units arrived the same or next-day. On Amazon’s corresponding earnings call in 2023, Jassy put the figure at 1.8 billion. This added convenience in ordering everyday essentials from Amazon comes at a challenging time for physical retailers known for selling those same products. Walgreens and CVS are shuttering locations and reporting declining comparable store sales for their non-pharmacy operations. Elsewhere, Rite Aid is now operating as a private company after it filed for bankruptcy last year and closed hundreds of stores in 2024. “The overall experience of shopping at a drugstore has deteriorated very badly for many people over the past few years as items get locked,” said Gil Luria, an analyst at D.A. Davidson who covers Amazon. Items from razor blades to deodorant are being locked up because of theft and other forms of what the retail industry calls shrinkage . It’s not only a drugstore problem. We’ve heard it from Target and others, too….
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