I am not saying I don't need Amazon. But do I still need Amazon Prime?
I've apparently been a member since 2005--which is basically when it started. I think back then it was $79 a year. Now it's up to $119. Not horrible; that's basically 2.5% inflation each year, more or less the broader rate.
But in 2005, I was a college student in a pretty rural place. Amazon was a cheap and convenient alternative to driving 45 minutes to get to the mall or The Container Store, and I used it for everything, all the time. Now, I'm a mom and a homeowner, and Amazon's convenience is getting to a point where it hurts more than helps our life. The more stuff that's haphazardly showing up every week, the less efficient our household is being.
Plus, so much of what we need comes down to groceries (and the less urgent stuff we could still order from Amazon, even without Prime), and as much as I love Amazon's Whole Foods curbside pickup, it still isn't as efficient as shopping at Costco, where we are also paying members. In fact, Bezos is said to have gotten the idea for Amazon Prime (whose business model investors love) from Costco's Jim Sinegal.
So, we decided last month--buh-bye Amazon Prime, hello Costco, even if it means taking three kids in tow there a couple times a month. I've mentioned this here and there, to see if this sounds crazy to people. Amazon reiterated in a recent shareholder letter that it believes it creates at least $630 of annual value for people, since buying online takes 15 minutes versus a one-hour trip to the store. But I think we might actually save at least that much by shopping more purposefully now.
I realize that while we're zigging, the rest of the world is zagging (I should add, we don't watch Prime Video, which many others do). Amazon added thirty-five million Prime members globally last year, according to Cowen, as the pandemic destroyed brick & mortar trips. Cowen analysts now think Amazon has 67% household penetration in the U.S., and such market strength they are likely to raise the cost of Prime membership again next year.
Argus thinks these new members will be incredibly sticky--"We believe there is no turning back for Prime members," they wrote earlier this month, "who may be in for a shock when they face the limited inventory and uneven sizes in physical retail stores." To which I would simply say, you can still order from Amazon without Prime! You can also order from Walmart. Or Target. There is a lot more "one-stop" online shopping (and rivals have curbside pickup!) today than there was in 2005.
From this point of view, Amazon's reported plans to open "department stores" makes a little more sense--they have seemingly tried every which way to crack the physical presence nut. I asked retail consultant Jan Kniffen about this during Rapid Fire the other day. "Amazon has been a pretty bad brick-and-mortar retailer" so far, he said, "and they're not growing that fast online anymore."
Maybe they are, maybe they're not, but retail remains Amazon's overwhelmingly important line of business. It did $98 billion in retail sales last quarter, per Argus, versus less than $15 billion in its cloud business, Amazon Web Services. That said, the cloud business is a lot more profitable.
Who knows if there is a real risk of attrition in Prime membership, which would seemingly undercut a big plank of the bull story on Amazon. Its retail sales profit margins, Argus says, are less than 4%--and without Prime, probably wouldn't be nearly as attractive to investors.
All I know is that for our household, the great "Sub-Prime" ("Non-Prime"?) experiment is now underway. Let's see just how long we can hold out.
See you at 1 p.m!
Correction: An earlier version of this newsletter misstated the timing of Amazon's estimate for the value of Prime to an average user.