This week, Amazon’s CEO Andy Jassy released his annual shareholder letter and sat down for a CNBC interview. As it relates to consumer and retail trends, Jassy noted a consumer that was being “considered” when purchasing and selecting deals and lower priced items that will save them money (i.e., the same consumer trend that was in evidence 2023). With these comments, we are reminded of the recent cautionary comments by Nike, Lululemon, and Ulta Beauty, all of which may reflect that consumers are looking to save even more money this year. Below we show three brands known for value and saving money. (We chose to not include a general merchant because mix can obfuscate the trend.) January and February were softer for T.J. Maxx and Ollie’s than Q4 2023 for the reasons that we previously noted; March is better. For Aldi, this year’s acceleration is incredible. And so, thus far in 2024, the 2023 consumer preference for value continues.
What struck us from Jassy’s letter was the share, “Because we don’t have enough space in our shipping fulfillment centers to store all the inventory needed to maintain our desired in-stock levels, we’ve built a set of lower-cost, upstream warehouses solely optimized for storage (without sophisticated end-user, pick, pack, and ship functions). Having these two pools of inventory has prompted us to build algorithms predicting when we’ll run out of inventory in our shipping fulfillment centers and automatically replenishing from these upstream warehouses. And, in the last few years, our scale and available alternatives have forced us to build our own last mile delivery capability (roughly the size of UPS) to affordably serve the number of consumers and sellers wanting to use Amazon…. [In 2023] we increased the number of items delivered same day or overnight by nearly 70% year-over-year. As we get items to customers this fast, customers choose Amazon to fulfill their shopping needs more frequently, and we can see the results in various areas including how fast our everyday essentials business is growing (over 20% year-over-year in Q4 2023)...The new, same-day fulfillment facilities in our Stores business. They’re located in the largest metro areas around the U.S. (we currently have 58), house our top-moving 100,000 SKUs (but also cover millions of other SKUs that can be injected from nearby fulfillment centers into these same-day facilities), and streamline the time required to go from picking a customer’s order to being ready to ship to as little as 11 minutes. These facilities also constitute our lowest cost to serve in the network. The experience has been so positive for customers that we’re planning to double the number of these facilities...In the U.S. alone, cost to serve was down by more than $0.45 per unit year-over-year. Decreasing cost to serve allows us both to invest in speed improvements and afford adding more selection at lower Average Selling Prices (“ASPs”). More selection at lower prices puts us in consideration for more purchases. As we look toward 2024 (and beyond), we’re not done lowering our cost to serve. We’ve challenged every closely held belief in our fulfillment network, and reevaluated every part of it, and found several areas where we believe we can lower costs even further while also delivering faster for customers. Our inbound fulfillment architecture and resulting inventory placement are areas of focus in 2024, and we have optimism there’s more upside for us."
