When Amazon (AMZN) locked horns with Wal-Mart (WMT) in a price war over books, pundits worried the online retailer would get seriously bloodied by doing battle with the deep-pocketed retail giant. Amazon is, after all, first and foremost a bookseller. Any frontal assault on its book-selling niche would do serious balance-sheet damage, the theory went.
I knew this theory was wrong from personal experience. Amazon's blowout quarterly numbers and impressive forward-sales guidance, reported on Thursday, validated my belief. On the earnings calls, Amazon Chief Financial Officer Tom Szkutak told analysts that much of Amazon's growth was coming from electronics and general merchandise. That mirrors the spending trends in my own home. In the past month alone, a significant portion of our offline spending went online to Amazon.
Let me break it down. Yes, much of that spending was in consumer electronics. I purchased a new scanner and a new Bluetooth headset for my cordless phone. I also sprang for a new battery for our iRobot (IRBT) Roomba robot vacuum cleaner. I have long been purchasing consumer electronics on Amazon. But lately it has become the first stop.
That's due partly to convenience, but also due to Amazon Prime, the wonderful service that gives expedited (usually second- or third-day free shipping on many products to customers willing to pay a flat annual fee of $79). Of course, I also own a Kindle and pay monthly subscriptions for media (although I may swtich to a Sony Daily Edition).
So I'm spending more on Amazon for consumer electronics. I'm also spending a lot more there -- surprise -- on groceries. My wife has strong preferences for more environmentally friendly options such as Bio-Kleen laundry detergent and Ecover stain remover. On Amazon, I can order those products in bulk and at discounts of roughly 20 percent to our local bricks-and-mortar supermarket. Plus, we don't have to lug them home.
But wait. Amazon also offers a subscription option that gives you a 15 pecent discount on grocery products that you agree to put on automatic reorder. The intervals can range from one month to six months. So with that added discount, the actual price of the product is 35 percent below what I pay at the store. Even better, these products are delivered to my doorstep and I never have to think about buying them again. The net gain for Amazon, out of our monthly spend, is probably $150 on grocery products.
It goes beyond groceries. We wanted an entry-level portable basketball unit for our driveway. We called several sporting goods stores near us, including a Big 5 Sporting Goods (BGFV). All were charging more than Amazon. None would assemble the hoop for us. All required we drive to the store. Amazon was cheaper and delivered. Guess who got the $120 for our new hoop?
And so it goes. Smoke detectors and batteries? Amazon and free delivery three days later. I could have gone and shopped around the Internet and probably found it cheaper -- maybe even with free shipping. But then I'm entering all my new credit card information and figuring out what free shipping means (Is it three days? Is it two weeks?) is a royal pain.
I could drive to a store, sure. But no one likes calling Wal-Mart, HomeDepot (HD) or other places, getting put on hold for minutes until someone -- who or may not be qualified to answer the question -- picks up. Both stores offer buy-online and pickup in person options, which, for same-day needs, I may take advantage of.
But my extra time driving, plus the costs of gas, means adding a significant amount of money to what may be a fairly minor purchase. Amazon Prime is also not a lot of money to pay for the convenience and faster shipping (It can also be shared among family members with different Amazon accounts -- a huge plus).
In this light, the clearest competitor to Amazon right now is Wal-Mart, which has done a bang-up job with its own e-commerce website. Still, product offerings are very limited compared to Amazon. Wal-Mart has not simplified its shipping costs structure, a necessary step for any company hoping to become a broad-category e-commerce killer like Amazon.
To be sure, my family may be on the leading edge of consumer behavior. A focus group of one family is a risky metric for broad extrapolation.
But I firmly believer there are enough of us around to make a difference for Amazon. When I tell others of my Amazon experience, I find that at least one-third of my peers are doing the same thing: buying groceries or other items at Amazon and shopping well beyond the mainstay categories of books and consumer electronics.
In a time of tight economics and people working two and three jobs to make ends meet, time becomes an even more important commodity. If we can get time and cost savings wrapped in the same package, then its a grand slam sales pitch. Bezos has pushed my hot buttons and that's why books no longer are the bellwether for Amazon.
Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at firstname.lastname@example.org.
Investing in Emerging Markets
Learn to invest in a globalized world.View Course »