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Amazon’s physical store sales drop despite booming first quarter

Executives cite strong customer response to Amazon Fresh supermarkets

Russell Redman

April 30, 2021

6 Min Read
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Amazon's tech-enhanced shopping experience is seen as a key draw of its Amazon Fresh grocery stores.Amazon

Physical store sales at Amazon fell by double digits in the fiscal 2021 first quarter, even as the retail giant saw overall net sales jump more than 40% and adjusted earnings per share come in 65% higher than Wall Street’s forecast.

For the quarter ended March 31, net sales again topped the $100 billion mark, totaling $108.52 billion, up 43.8% from $75.45 billion a year earlier, Seattle-based Amazon reported after yesterday’s market close. Excluding the $2.1 billion favorable impact from foreign exchange rate changes, sales grew 41% year over year, the company said.

Online sales surged 44% to $52.9 billion in the first quarter from $36.65 billion a year ago and were up 41% excluding foreign exchange. Sequentially, online sales were down 20.4% from the fourth quarter, which included the holiday sales period.

Amazon’s physical store sales, which include Whole Foods Market, declined 15.5% (no impact from foreign exchange) in the fiscal 2021 first quarter to $3.92 billion from $4.64 billion in the 2020 quarter. That followed an 8% year-over-year decline in the fourth quarter. Brick-and-mortar store sales also were down 2.5% sequentially from the fourth to the first quarters. Results, too, cycled large gains in sales of groceries and other essential items a year ago triggered by the COVID-19 pandemic.

Related:Amazon expands Key In-Garage Grocery Delivery

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Grocery has been 'a great revelation' in the post-pandemic period, Amazon CFO Brian Olsavky said.

In fiscal 2020, Amazon recorded physical-store sales declines in three out of four quarters, with an 8% year-over-year gain in the first quarter followed by decreases of 13%, 10% and 7% (excluding foreign exchange) in the second, third and fourth quarters, respectively.

Brick-and-mortar store sales were one of the few negatives in Amazon’s 2021 first quarter, according to Jefferies analyst Brent Thill. “Physical stores continue to struggle, declining 16% year over year and falling 9% below consensus,” he wrote in a research note late Thursday.

Amazon’s physical-store sales come mainly from its Whole Foods Market unit and exclude online orders made via its brick-and-mortar brands, such as Prime Now delivery and pickup through Whole Foods stores. Currently, Amazon’s U.S. physical stores include 503 Whole Foods Markets, 12 Amazon Fresh grocery stores, two Amazon Go Grocery stores, 22 Amazon Go convenience stores, 24 Amazon Books stores, 30 Amazon 4-Star outlets and seven Amazon pop-up locations.

Earlier this month, Amazon closed four Amazon Go locations, including two stores in Chicago (at Illinois Center and at W. Adams and S. Clark), one store in Manhattan (at 300 Park Ave.) and one store in San Francisco (at San Francisco Centre). The stores shut down on April 2, and associates were offered new jobs with Amazon, according to the company.

Related:Whole Foods Market adopts Amazon One palm-scanning payment service

“Like other retailers, we regularly evaluate our Amazon Go store locations, and as a result, have decided to permanently close four Amazon Go stores," an Amazon spokesperson said in an email on Friday. "We have offered all impacted employees at these stores new opportunities within Amazon, including at other nearby Amazon Go stores, and remain invested in our vision for Amazon Go as we look forward to opening additional locations over time."

In a conference call with analysts late Thursday, Amazon executives said grocery sales remain on the upswing, and the company has seen promising early results from its new Amazon Fresh supermarkets. Most recently, Amazon opened a 40,000-square-foot Amazon Fresh in Long Beach, Calif. That banner now has eight stores in California and four in Illinois, while Amazon Go Grocery has two 10,000-square-foot stores — featuring Amazon’s Just Walk Out cashierless technology — in Seattle and Redmond, Wash.

“Grocery has been a great revelation during the post-pandemic period. I think people really value the ability to get home delivery, and we’ve seen those numbers go up considerably pre- and post-pandemic. We’ve also worked very hard to increase our capacity during that time period,” Amazon Chief Financial Officer Brian Olsavsky said in the call. “In the United States, we’re delivering out of our Whole Foods stores, and we’ve allowed a greater expansion of pick-up at Whole Foods stores. Amazon Fresh became a free Prime benefit, as you know, in the late part of 2019. And customers really adopted it, and we continue to see strong growth.”

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Amazon's Just Walk Out 'skip the checkout line' technology is being tested for a possible rollout to Amazon Fresh supermarkets.

Last month, Bloomberg reported that at least 28 more Amazon Fresh stores are in the works “from Philadelphia to the Sacramento suburbs.” Thus far, Amazon has only confirmed four new U.S. locations, two apiece in New Jersey and Washington state. In addition, Amazon is testing the Just Walk Out technology — used mainly at its compact Amazon Go conveniencde stores — at the Amazon Fresh in Naperville, Ill., but hasn’t made it available to the public at the store.

“I think on the Fresh stores, it’s a little too early [to assess performance], the stores themselves,” Olsavsky said in response to an analyst’s question. “We’re confident that the Just Walk Out technology will be a benefit to customers, and we’re very excited about what’s in the works. But that’s still really early, in day one.”

The Amazon Fresh concept has been well-received by shoppers, according to David Fildes, director of investor relations at Amazon.

“We’ve got about 12 Fresh stores right now that are open, and we’ve got some additional ones coming in Southern California, Illinois, New Jersey and then here with us in the Seattle area. So as Brian said, really pleased with the start, the technology and the feedback from the customers so far.”

On the earnings front, Amazon posted fiscal 2021 first-quarter net income of $8.1 billion, or $15.79 per diluted share, compared with $2.54 billion, or $5.01 per diluted share, a year ago.

Analysts, on average, had projected adjusted EPS of $9.54, with estimates ranging from a low of $6.41 to a high of $12.00, according to Refinitiv.

In its first-quarter reported, Amazon also noted that the expedited its annual fall pay review for its U.S. customer fulfillment, delivery, package sortation and specialty Fulfillment teams. Plans call for more than 500,000 employees to get increases from 50 cents to $3 hour in mid-May through early June, marking an investment of over $1 billion in incremental pay.

Darcie Henry, vice president of people experience and technology, worldwide consumer, at Amazon, had announced the upcoming pay hike on Wednesday.

“This is on top of our already industry-leading starting wage of at least $15 an hour and the more than $2.5 billion that we invested last year in additional bonuses and incentives for frontline teams,” Henry said in a statement. “These jobs come with a range of great benefits, like medical, dental and vision coverage; parental leave, ways to save for the future; and opportunities for career advancement — all in a safe and inclusive environment that’s been ranked among the best workplaces in the world.

Other teams are continuing with their regular annual compensation review plans, which will occur throughout the remainder of 2021.”

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About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

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