Amazon's Annual Shareholder Letter Is Yet Another Wake-Up Call for Brands

For the first time in Amazon Prime’s 13 year history, the membership numbers are in CEO Jeff Bezos' annual shareholder letter, along with other statistics around the Prime business that show the company’s dominance in ecommerce. Amazon Prime’s 100 million (and counting) worldwide members shipped more than 5 billion products with the service in 2017. The program also signed up more members in 2017 than other years. The news wasn’t too much of a surprise to analysts or agencies, but it’s yet another landmark—and a wake-up call to brands. “Brands should notice this because they’re slowly becoming wrapped around Amazon’s finger,” said Matt Tepper, chief strategy officer, North America, Wunderman. “With each passing month, they’re losing margins because Prime members know they’ll get their products in two days versus the seven-to-10-day delivery from brands’ owned sites.” Sucharita Kodali, vp and principal analyst at research firm Forrester, said brands and retailers have to realize that Prime is much more than a two-day shipping service—it’s a whole ecosystem full of music, movies, photo storage and more. “Prime is a compelling loyalty program,” Kodali said. “They are faster than everyone else [and] they have a bigger assortment than anyone else. [These companies] are just competing on one small aspect of that.” For companies like Walmart and Target who are shaking up leadership, acquiring new companies and trying to make a bigger push into ecommerce, Kodali’s not sure if the changes they're making are enough to compete with Amazon—regardless of the 100 million Prime members. Another staggering number in the letter included 5 billion products being shipped with Prime in 2017. The White House has issued a task force to oversee the United States Postal Service to find out how to solve its numerous money problems (much of which President Trump has attributed to Amazon), but other shipping companies, like UPS, continue to value the ecommerce giant as a customer. “We support all our customers with industry-leading ecommerce solutions and expect to expand these relationships further in the future,” said a UPS spokesperson. “UPS continues to experience topline growth and margin enhancement driven by business-to-consumer volume growth and strong international expansion.” In the letter, Bezos also mentioned that Whole Foods is looking to “recognize” Prime members at the grocer’s point of sale system. What that will end up looking like is unclear and shouldn’t be too much of a concern for the grocery industry—yet. “Amazon does not have a history of really tightly integrating brands,” Kodali said. Amazon now faces two key problems: its need to continue growing Prime membership and an increasing focus on how little the company’s fulfillment centers workers make. The company also disclosed for the first time that its median employee pay was $28,446 in 2017. A new report from The Intercept also showed that in several states, Amazon employees rely on the Supplemental Nutrition Assistance Program (SNAP). Kodali points out that while Prime continue to grow, it’s slowing down in the U.S., which is why Amazon is heavily investing in international markets. Back when Prime started 13 years ago, Amazon didn’t strike worry or fear in the hearts of many—outside of adventurous explorers trying to find the Lost City of Z. After all, the company missed estimates for its fourth-quarter earnings in February 2005 and was still trying to prove to investors that it could make the business work. But now, Amazon has become a force that's threatening many brands' very existence. "At the end of the day, 'brand' is still going to be important to differentiate on Amazon but with the rapid margin erosion, it will be increasingly difficult for brands to fund branding initiatives,” Tepper said.