Dive Brief:

• Amazon continued to struggle in the holiday quarter, as product sales fell 1.2% to $70.5 billion. Online store sales fell 2.3% year over year to $64.5 billion, with physical stores (mostly Whole Foods) up 6% to $5 billion. Overall net sales, including the AWS cloud business, rose 9% to $149.2 billion.

• Retail-related services posted smaller gains than usual, per GlobalData analysts. From a year ago, revenue from third-party seller services rose 20%, subscription services rose 13% and advertising rose 19%, per Amazon’s press release. Marketplace sellers were responsible for a record 59% of unit sales, Chief Financial Officer Brian Olsavsky told analysts during a conference call Thursday.

• Net income shrank 98% to $278 million, in part due to a pre-tax valuation loss of $2.3 billion from its Rivian Automotive investment, according to a filing with the Securities and Exchange Commission. For the full fiscal year, the e-commerce giant swung to a loss of $2.7 billion.

Dive Insight:

Amazon CEO Andy Jassy, who just finished up his first full year at the helm, joined Olsavsky on the company’s earnings call Thursday, and sought to keep the focus on its strength and long-term potential.

Analysts were preoccupied with slipping sales and margins in the company’s cloud business, which has traditionally helped support the less lucrative retail side. To buttress the retail business, the executives said they will bulk up what they noted is an already rich package of Prime membership perks — a streaming video service, gaming, photo storage, fast and free shipping, try-before-you-buy apparel shopping, the ability to use Prime at other retailers and a new prescription benefit.

“We will continue to work very hard on those customer experiences, and we have a lot more planned,” Jassy said.

While there have been reports that Prime membership growth is stalling in the U.S., the program “remains strong and so has the dollars purchased per Prime member,” though that “varies a bit by geography,” Olsavsky said. Despite cutbacks to its fulfillment capacity, the e-commerce giant is working to get back to its goal of one-day shipping for Prime members, he also said.

Amazon’s enticing ecosystem couldn’t protect it from the economic uncertainty that is making shoppers cautious. Customers in the fourth quarter were quite price sensitive and less likely to buy bigger-ticket items, Olsavsky said.

In the quarter the company made progress in right-sizing its operations and cutting costs, however, including “continued efficiencies across our transportation network,” he said, adding, “We remain focused on driving cost efficiencies throughout the network and reducing our cost to serve our customers, while ensuring we maintain an outstanding customer experience.” Jassy also emphasized the company’s ongoing streamlining of its operations.

But retail at Amazon may need attention beyond sweetening its Prime membership or speeding up its fulfillment.

“Management has spent most of the past year trying to make repairs in the form of reining in spending, but the actions were not sufficient to save the quarter or the fiscal year,” GlobalData Managing Director Neil Saunders said in emailed comments, noting that the company’s overall Q4 revenue reflected its “slowest final quarter growth in over 10 years.”

That’s due in part to the macroeconomic pressures cited by Olsavsky.

“However, Amazon underperformed the market so must shoulder some responsibility for its numbers. All the deterioration came from online, where sales dropped by 2.3%,” Saunders said, adding that while physical stores did better, much of their growth came from inflation rather than volume growth. 

What has become a somewhat chaotic online experience is partly to blame, according to Saunders.

“While the Amazon marketplace is far from a terrible place to shop, it has become more complex and cluttered with a multitude of products, delivery options, and prices levels for shoppers to sift through,” he said. “The result is that impulse buying has dropped and that more people are migrating away to other retailers. This is not yet a serious problem as erosion has only happened at the margins, but it is something Amazon will need to address and arrest to prevent further decline.”