The recently announced one-day shipping program of Amazon.com, Inc. is expected to cut its profits for the upcoming holiday, said Reuters. This comes after the retail company invested in faster delivery to compete against other players such as Walmart and Target.
Estimates show that that Amazon’s new delivery program will cost almost 100% more than its shipping expenses in the second quarter. During this quarter, the company rolled out free one-day shipping without minimum purchases. It spent $800 million during Q2, but it is expected to spend around $1.5 billion in Q4.
Aside from increased expenses in order transport, the trillion-dollar company is also apprehensive about “forgone shipping revenue.” Brian Olavsky, the Chief Financial Officer of the firm said that it is forgoing profits that it could have made if it charged customers for choosing faster delivery options.
Comparatively, shipping services such as the United Parcel Service, Inc. increase fees when customers choose faster delivery.
Analysts say that this surge in delivery expenses is easily foreseeable in light of Amazon’s offer, especially as there is a jump in orders during the holidays. ShipMatrix founder Satish Jindel said that Amazon should have expected this development as the same thing happened when it offered two-day shipping for Prime members with no fees in 2005.
Historically, Amazon orders increase by 50% to 60% in the fourth quarter as compared to second-quarter figures.
CBS News reported that the company’s third-quarter net income decreased to $2.1 billion, which is a few percentages lower than experts’ projections. However, its revenues performed above expectations when its earnings increased by 24% up to 70 billion for the same quarter.
Meanwhile, Amazon CEO Jeff Bezos remains optimistic saying that this move will be beneficial in the long run.