Apparel Sourcing Intelligence - Worldwide

Amazon Q3 retail sales “surprisingly weak”

Although Amazon announced third quarter sales 2017 were “up 29%” its retail sales were surprisingly weak – and its profits from retail outside North America may not have improved as much as they seem to have at first sight.

Amazon is frugal in the information it provides about sales and profits. Its top-line performance numbers for 2017 may well hide more than they reveal. By any standards, Amazon is a huge retailer. But it’s not clear where its priorities lie

It lost money on retail in 2017

P&L, 2017 ($bn) Sales Operating Expenditure Operating income
Web Services AWS 17.5 13.1 4.3
“Retail”   160.4 160.6 -0.2
Online stores 108.4    
Physical stores 5.8    
Third party services 31.9    
Subscription services 9.7    
Other 4.7    
“Retail” total 160.4    
Total   177.9 173.8 4.1


Web services (AWS) refers to computing storage, databases, etc.

Online stores means income from products bought by Amazon and resold online.

Physical stores is mainly 3 months Whole Foods sales, plus a few pilot Amazon stores.

Third party services is gross income from products sold on Amazon by third parties. About a third of the selling cost: so $31 bn in income represents about $90-100 bn sales.

Subscription services is fees from Amazon Prime, and from other “all you can eat” deals. It is not clear anywhere in the results how much expenditure needs to be offset against this income for the cost of services provided. This is not just product handling and delivery, but the production cost of Amazon video, royalties on much of Amazon’s free music downloads and discounts and cashbacks to Prime members

Other, Amazon says in Q3 2018 “primarily includes sales of advertising services, as well as sales related to our other service offerings” such as “our co-branded credit card agreements” However, there is no sign of any actual income from such agreements”

Amazon has almost no history of retail profit outside North America

For all Amazon’s claimed “retail dominance”, its historical record shows scarcely any profit from retail at all since its first annual report in 1998. Indeed, for reasons no-one can understand, it does not break out its extraordinary European retail losses in the annual 10K report filed with the US Securities and Exchange Commission (SEC). But the billion-dollar loss is in data filed with the Luxembourg government, which we discuss on this site.

The table below is from Amazon’s 2017 10K, but we have separated the sales and profit for Europe declared in its Luxembourg filings from  the “Rest of world” data in the 10K

  2015 2016 2017
North America Sales ($bn) 63.7 79.8 106.1
  Op Inc ($bn) 1.4 2.4 2.8
  Op Inc % 2.2% 3.0% 2.6%
Europe Sales ($bn) 20.6 23.9 28.1
  Op Inc ($bn) 0.5 0.05 -0.98
  Op Inc % 2.6% 0.2% -3.5%
Rest of World Sales ($bn) 14.8 20.1 26.2
  Op Inc ($bn) -1.2 -1.4 -2.1
  Op Inc % -8.4% -6.7% -8.1%


Amazon claims rapid retail growth in Q3

In Q3, things seem to have got better. Sales in $billion:

P&L, Q3 ($bn) 2017 2018 Apparent % change
Web Services AWS      
Sales 4.6 6.7 46%
  Op inc 1.2 2.1 177%
“Retail” Sales    
  Online stores 26.4 29.1 10%
  Physical stores 1.3 4.2 233%
  Third party services 7.9 10.4 31%
Subscription services 2.4 3.7 51%
Other 1.1 2.5 122%
“Retail” total sales 39.2 49.9 27%
“Retail” Op inc -0.8 1.6  
Consolidated Sales 43.7 56.6 29%
Op Inc 0.3 3.7 1073%

The retail numbers Amazon quotes are misleading, though:

  • Online sales increase of 10% sounds adequate – but the argument Amazon makes for losing so much in most of the world is that it is investing in growth. 10% isn’t the growth most would expect
  • Physical stores (essentially Whole Foods) did not really grow 233%.The numbers quoted for Q3 2017 take just the four weeks of Whole Foods sales under Amazon ownership.
    • For the whole twelve weeks to Sep 30 2017, Whole Foods sales were $3,654 mn: so the $4,248 sales in 2018 were just 14% up on 2017.
    • Moreover, Amazon itself admits that in the five months of 2017 under Amazon ownership, Whole Foods lost $24 mn, after making $245 mn in 2016. Amazon claims “increased unit sales” in 2017 “were driven largely by our continued efforts to reduce prices for our customers.”
    • But the numbers show no evidence that Whole Foods’ sales growth in 2018 at lower margins did anything to compensate for Amazon’s price reductions.
  • Third party sales grew 31% in cash. In fact, the amount shipped may have grown faster: third party sales accounted for 50% of units shipped in 2016, but 53% in 2017.
  • Subscription services (mainly Prime) grew 51%. But the $1.2 bn growth in income to $3.7 bn was the same as the cash growth in the cost of fulfilment to $6.6bn. Prime subscriptions still seem to be costing far more than the deliveries (and film production and royalties and discounts)  they are supposed to pay for.


Amazon’s sales and profits are certainly growing, if opaque. But, whatever they are, they no longer seem generated by real retailing