For $79 a year, Amazon (NASDAQ:AMZN) offers customers a Prime membership program, with a plethora of benefits - free two-day shipping, a 15% discount on "subscribe and save" products, free streaming on a wide array of TV and movie content and also free e-book rentals. Although the total subscriber base of Prime members is somewhat secretive, it is published at north of 5 million and accounts for 40% of North American revenues.
I have been a Prime member for over two years now. In this short time, my family and I have become Amazon super-shoppers. The selection is vast, the reviews provide honest feedback, customer service (ease of returns) is excellent and nothing beats the instant gratification of free two-day shipping. Together, these benefits have created intense loyalty, which feeds future sales.
As a super-user, I am constantly discussing the benefits of Prime and how the program has improved my life in a measurable way. Here are some real examples from my purchasing:
- When my 11 year-old son wants a book from that "well known but contracting brick & mortar book store," rather than drive 20 minutes each direction and spend another 10 in the store, we simply purchase through Amazon. We save a few bucks and go hit baseballs with the hour of "found" time.
- I purchase protein bars through the subscribe & save program. They show up according to a calendar I set (and can alter) and the price is lowest anywhere. No more driving to the store or out-of-stock surprises either.
- Wide range of products - my family purchases include dog food, an X-Box, DVD's, sneakers, a bike rack, ear buds, etc.
- Speed - those last minute gifts will get there on time.
- Reliability - on occasion the free two day shipping arrives in one day.
Overall, Amazon has not only allowed me to get best pricing on a wide range of products. It also has made the entire product selection process easier and most of all, it has saved me countless hours of driving to/from various brick & mortar stores. Amazon has given me back the greatest asset of all -- time.
So, how does this relate to investing? E-commerce is still just getting warmed up at only 7% of U.S. retail in 2011. As Amazon matures and both social media and mobile commerce accelerate, online shopping will too. Also, the global factor and general comfort level/acceptance of online shopping will continue to tilt e-commerce in favor of traditional brick & mortar shopping. Pundits predict that the pace of e-commerce growth will improve due to the combined impact of all of these new methods of shopping, sharing and paying.
Amazon, as the leader in global online shopping has most to win as overall e-commerce growth surges. As the Prime membership base expands and current members funnel more household purchasing towards Amazon, sales will accelerate and the profits will follow - Prime provides an accelerant to Amazon's revenues. As Amazon morphs into a media company (Kindle, digital downloads, streaming service, original content and can deliver more products, which do not incur shipping fees, profit margins should widen and long-term shareholders will greatly benefit. The key here will be whether Amazon can grow their media business faster than the growth of their low-margin core business - time will tell.