Amazon may be raising their Prime membership price as the retailer is battling higher shipping costs.
Fuel prices have climbed and the company is struggling to keep the cost of deliveries down.
During a conference call with analysts on Thursday, following disappointing quarterly results, Amazon said it may have to increase the cost of Prime, which currently costs $79 a year, in the U.S. by $20 to $40.
Neil Doshi, an tech stock analyst in San Francisco with CRT Capital Group, thinks most people won’t mind a $20 increase but a $40 jump “might be hard for consumers to swallow.”
“I do not expect there to be so much angst against this price increase, but I do expect there to be some modest churn,” Doshi said.
Amazon said that its net shipping costs jumped 19% to $1.21 billion in the fourth quarter. That was 4.7% of net sales, up from 4.5% a year earlier. Expenses like this contribute to the company’s wafer-thin profit margins, which have been a concern on Wall Street for years.
“They can’t keep losing so much. This is their profit margin,” Colin Gillis, an analyst at BGC Partners told USA Today. “Drones aside, they have to find a way to get the package from the warehouse to the user in a timely way but also in a cost-effective way.”
CNN Money reported the Amazon Prime price increased surprised analysts. “The way they went about announcing it just didn’t seem very Amazonian,” says Mark Mahaney, managing director at RBC Capital, who expected a digital letter by Jeff Bezos. More importantly, Mahaney says he doesn’t see “a financially obvious reason” to raise prices, pointing out that Amazon’s shipping costs seemingly remain stable.
There’s no telling when or if Amazon will raise its prices.
Prime members get two-day shipping on a large number of Amazon items at no extra cost, plus the ability to borrow Kindle books and stream movies.
Amazon has quadrupled in size to 108,000 in four years and the price of Prime hasn’t changed since it started nine years ago. The number of products available for free two-day shipping has grown from 1 million to 19 million, and the program now includes movies, electronic books and the prospect of same-day shipping in the near future.
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