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Analysts Believe Amazon Will Start Raising Its Prices

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By Angela Colley, dealnews contributor

In its fourth quarter earnings report, Amazon reported a net sales increase of 27%, raising its sales revenue to $61.09 billion. The retail giant's operational costs also went down by 22% to $676 million, but Amazon ended its year in the red with a net loss of $39 million, compared to its net income of $631 million in 2011.

The company's lack of profits in 2012 are mostly a result of Amazon's hefty investments and overall thin profit margins. And while no expert blames customers for not buying enough, it very well may be Amazon shoppers who will pay the price to make up for that revenue gap.

Consumers Could Be Paying for Amazon's Lack of Profits

These costly investments include developing 20 new fulfillment centers (making for a total of 89) and hiring 50,000 temporary workers during the holidays. Additionally, the Kindle and Amazon's video service are not very lucrative for the retail giant. According to Forbes, Amazon has been subsidizing the cost of the Kindle Fire in "order to gain a foothold in the market for tablets." Amazon also invested more in its video services last year: the company added 19 million pieces of digital media in 2011, all at no small price tag.

And while investments account for a portion of lost profits, Amazon's own price points may also be a factor. The company is famous for deep discounts on everything from socks to small kitchen appliances — a reputation it needs in order to keep a competitive edge. But low prices also mean all-around thin profit margins.

Independent analyst Paul Santos thinks that as Amazon continues to sell more products every year, the cost of selling will increase faster than revenue will, if the retailer continues to offer those famously low prices. In other words, Amazon won't be able to make a profit by selling greater quantities of goods at rock bottom prices. Instead, to boost profits, Santos thinks Amazon will have to raise prices. And it may have already. According to Santos, a number of Subscribe & Save products have gone up in price, some of which went "above and beyond any reasonable level, to the point where customers started finding out that much of the stuff they were buying could be had cheaper in the offline world."

What's more, a recent Kantar Retail study found that Amazon might not be the cheapest place to shop for grocery and household items to begin with. Kantar Retail shopped for 36 different products at Amazon, Walmart.com, and in Walmart's brick and mortar stores. The result – Amazon was 25% more expensive than Walmart, and 12.2% more expensive than Walmart.com.

So what does this mean for the everyday Amazon shopper? Well, if Amazon's calculated investment in the Kindle gives it the foothold it was hoping for — and more customers start renting digital books, movies, and TV shows from Amazon's digital services — profits should rise without us suffering sticker shock. But if Amazon's long-term plan to lower prices and "invest heavily in the future" fails and the retailer can't improve its profit margins by business development alone, the company may turn to raising its prices.

If that's the case, would you continue to buy from Amazon, readers? Or would you turn to other online retailers for potentially cheaper items?


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Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).
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14 comments
alanec
Amazon used to be my first choice to shop but because the role they played in the states taxes it will be my last and now they have the nerve to raise their prices, they should be watch out, look at JCP. alanec.
alanec
Amazon used to be my first choice to shop but because the role they played in the states taxes it will be my last and now they have the nerve to raise their prices, they should be watch out, look at JCP. Bebelle.
Lazyboy113
There are so many issues that normal shoppers don't think about..there are MAP issues to start. Also amazon controls prices everywhere. If their prices go up, so will everyone's prices. There is no such thing as free shipping. Especially for two day prime, you can't possibly expect anyone to send you a pen 2nd day for $4.. Come on. You try calling ups for a quote for 2nd day.. It'll blow your mind. Yes they have amazing rates but its still a huge percentage for a small purchase. Taxes-not their fault. These studies.. Of course you're better off buying paper towels at wal mart. Go to the post office and try to ship 8 rolls. It'll cost more than the towels yet everyone expects free ship and lower prices
Yuniverse
they should realize shoppers are smart - especially internet shoppers. Higher prices will reduce their sales and therefore their profits - even with higher margins.
M4STERHACK3R
I usually buy necessities at a brick and mortar store and I buy stuff not found at stores like Walmart, BestBuy, or Albertsons on Amazon. For some time now I have noticed Amazon's prices go up and their free shipping offers go down; this has forced me to reconsider some of my purchases. If Amazon raises their prices any further I will have no other option than to look for alternatives. What a shame I used to love shopping on Amazon! (Rip Amazon 1995-2013)
roberto tambien
Amazon has definitely slowed down their free shipping, though they deny it. I do order things several times a month, but if they are not competitive, I am taking my business elsewhere. They are an excellent information resource in any case.
FilipKay
I'd have to look at overall price, including shipping. I'd most likely buy elsewhere though, but it would have to be somewhere reputable.
Pandp
The service has markedly slowed from less than three days to five plus and my last order of April 30 still has not arrived today the 9th of May outside of the expected arrival date again. Should not take 5 days to get out of warehouse. I have been shopping another site that is growing fast and probably because they get the orders out in less than 2 days. Should not have grown so fast that customer service is failing.
Pandp
The service has markedly slowed from less than three days to five plus and my last order of April 30 still has not arrived today the 9th of May outside of the expected arrival date again. Should not take 5 days to get out of warehouse. I have been shopping another site that is growing fast and probably because they get the orders out in less than 2 days
Modemouth
I have been a PRIME member since the beginning. I live in a rural area and used to get three or four grocery orders each week. Our grocery stores are more for basics. I do not like the subscribe and save new requirements or having to spend $25 to get a ride along item included. I question the value of Prime and my loyalty to amazon. I usually check prices and am now shopping more at Walmart and Sam's Club.
maydepot
Amazon has been making cost cutting moves for some time now.

For example, they no longer allow Prime 2-day shipping in conjunction with Subscribe & Save program. They also stopped allowing Prime shipping for some items. If that wasn't bad enough, they started charging sales tax in my state. I know, not their fault.

But I still order dozens of times a month from them because I often find great bargains, often cheaper than local box stores (even less than Costco). Plus I get free Amazon gift certificates each month, so many items are free.... and shipped free with Prime thanks to Amazon Mom.
gusgus
investers are always wanting to line their pockets more heavily. They can't seem to be aware that sooner or later they will lose customers-- who's money they use to line their pockets! Being aware of others is not in the galaxy the rotate through. Too bad! Get real. you'se are killing the world!
rmwinslow
I agree with everything Harry said!
HarryTuttle
Except for those occasional deals/bargains, Amazon is more of a consumer information resource and a highly convenient shopping facility than a source for great prices.

On price in general Amazon is at best competitive. Now that they are collecting taxes their pricing is even less of a draw. The shopping/comparison process gets you to their site. The service (delivery, returns, adjustments, etc) is very good, but "it's not what it use to be". The PRIME membership attaches you to ordering from them when prices are close and does supply a few other incentives for joining. You can still buy with confidence at Amazon, you can usually find what you're looking for, it's very convenient to shop there. If pricing goes up, the value of Amazon's advantages decreases.
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