Amazon's push to bolster profits hits snagsOnline retailer Amazon is used to defying analysts' expectations, but the company's pursuit of long-term profit growth has hit some snags, Bloomberg reports.

Amazon chief executive Jeff Bezos has long brushed aside analysts' concerns, as he has spent heavily on new facilities and distribution centers for the world's biggest online retailer. Amazon has often reported slim to modest profit growth, but one of the company's long-term plans for fueling profits has not been as successful as planned.

Amazon's Prime service, which charges users a flat $79 annual fee for two-day shipping on all their orders, has been a linchpin in the company's path toward cultivating customer loyalty. However, only between 3 million and 5 million people were subscribed to Prime as of October, a figure that is far lower than the company's bullish forecast, according to the news provider.

The Seattle, Washington-based retailer is mulling a number of potential ways to drive membership and sales, particularly in the wake of its disappointing fourth quarter results, which were far below analysts' expectations. Amazon is focusing its attention on increasing Prime membership, as the firm contends such customers are far more likely to spend more at the online retailer's e-Commerce store.

"After a couple of years, a Prime subscriber may be spending six times or more," ChannelAdvistor Corp. president David Spitz said.

In an effort to bolster profitability, Amazon has launched cost reduction initiatives and improved supply chain management, but questions remain as to whether the retailer can continue to post healthy revenue gains. In its last quarter, the company reported $17.4 billion in revenue, which although up precipitously from the year prior, still came in below analysts' expectations of $18.3 billion.

Meanwhile, Amazon's shipping costs soared over the past year as the company absorbed losses throughout its effort to entice more customers to join the yearly subscription service. While the service has not been as successful - at least thus far - as the company had hoped, it is weighing on its profit growth. Amazon spent $4 billion on shipping costs in 2011, significantly more than the $1.55 billion it collected from customers to cover such added costs.

Amazon has declined to comment on the exact number of people who are subscribed to Prime. The company's stock fell 1 percent in trading on Tuesday, hitting $191.24 per share.

Share To:

Strategic Sourceror

Post A Comment:

0 comments so far,add yours