Client Letters: Retail Rebounds, Inventory Swells, AWS Growth Slows
The latest quarter from eCommerce’s toll booth is in the books, and much like the prior period, profitability continues to trend upward. Notably, Amazon didn’t rely on markdowns to drive results—inventory levels remain elevated. Key takeaways below:
Online sales exceeded expectations, rising 11%—the fastest growth rate in years. However, inventory levels increased 19% this quarter and 15% last quarter, outpacing sales growth. This imbalance suggests elevated pricing and increased vendor funding, particularly as Amazon posted its highest operating margin in years.
AWS grew 17%, falling short of consensus estimates. Once a consistent outperformer, AWS is now raising concerns among Wall Street analysts.
Third-Party Seller Services returned to double-digit growth. Since Amazon collects a referral fee from sellers, this also points to higher pricing dynamics. Advertising revenue surged 23%—its fastest growth since Q1 2024—adding to the momentum.
Bottom Line (1P Vendors): Amazon is clearly leaning on price increases and enhanced vendor funding to fuel profitability—even as it manages elevated inventory levels. Inventory on the books is up 19% year-over-year, while sales grew just 11%. Expect a continued shift toward leaner inventory positions and sustained focus on Net PPM, as operating margins in the retail segment continue to expand.
Bottom Line (3P Sellers): Growth in Third-Party Seller Services and Advertising suggests that price increases are taking hold and cost-per-click competition remains strong. Major sellers continue to view Amazon as the most effective conversion platform, while Amazon shows a clear willingness to capitalize on its dominant retail position.
