Amazon going after lower-income customers might not work, analyst says – CNBC

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An employee secures customers' orders with bubble wrap before they are shipped at the Amazon Fulfillment Center in Tracy, Calif.

Retailers’ battle to win a greater share of consumers rages on.

This time, an e-commerce giant is going after less-affluent shoppers, but Wall Street remains skeptical these bets will pay off.

Earlier this week, announced it will offer a discount on its monthly Prime membership rate for people who receive government assistance — what’s been viewed as a move to target lower-income shoppers who make the majority of their purchases from the aisles of Wal-Mart, Dollar General and Dollar Tree.

People who have a valid benefits card, which would be used for programs such as the Supplemental Nutrition Assistance Program, or food stamps, will now pay $5.99 per month for Amazon Prime, the company said. A typical membership costs $99 a year, but there’s also a $10.99-per-month option.

What’s worth noting is that roughly 80 percent of surveyed consumers already “not willing” to pay the current $10.99 monthly Prime fee still won’t pay the lower $5.99 rate, Gordon Haskett analyst Chuck Grom wrote in a note to clients Wednesday.

“This is much higher than we would have expected, and suggests across-the-board adoption is certainly not imminent.”

Grom said he surveyed 500 shoppers who bring home less than $40,000 annually to ask them about their willingness to take advantage of Amazon’s new deal.

Only 26 percent of those surveyed this week by Gordon Haskett were already Prime members, he said. This is a considerably smaller portion than the estimated 46 percent of all U.S. households that were Prime members last year, according to a 2016 report from Consumer Intelligence Research Partners.

“While the Prime news certainly falls into the ‘risk bucket’ for the low-end retailers, we see the concerns (and recent negative stock reactions) as a bit overblown,” Grom wrote, referencing the fact that shares of Dollar Tree and Dollar General pulled back on Amazon’s latest news.

Based on Gordon Haskett’s data, the average household income for Amazon Prime members is around $90,000 annually.

Of the 369 respondents surveyed by the firm who say they aren’t currently Prime Members, only a little more than 21 percent, or 78 people, are willing to spend $10.99 per month to join. Of the 291 respondents who say they are unwilling to pay the $10.99 rate, only 21 percent, or 61 people, would consider paying the discounted $5.99 price tag.

“We believe the fear and stock reaction of these retailers since the announcement is overblown, given … just 21% of respondents would now consider Prime because of the new discount,” Grom wrote.

One factor that should be considered is the fact that customers must use their own funds, not government assistance, to cover the Prime membership cost. A lack of internet access could also pose a problem. And many of Amazon’s food or household essential products tag on additional fees when purchased.

Amazon is only just beginning to test this offering in select markets, “putting the potential for a national rollout years away,” Grom said.

This, as other big-box retailers like Target and Costco are constantly trying to sweeten their offerings to attract a larger consumer base. The retail wars see another day.

Read: Trump’s plan to slash food stamp assistance could be a major setback for these retailers


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