Amazon is the dominant player in e-commerce in Europe. That was brought home to us in Mintel’s recent DIY Retailing – Europe, May 2016 report, where, in a sector that is generally weak online, a third of internet users had bought DIY goods from an internet pureplayer.

So it is worth looking at the recently published annual accounts and the first quarter figures to get an idea of just how well it is really doing. In particular, what evidence is there to support the impression we have been getting that Amazon’s emphasis is switching from gaining market share to building profitability.


On the face of it there is no evidence of a slowdown in sales. Full year US sales rose 25% and international sales rose 21% in local currency terms. In addition there is the AWS division (a business to business operation selling Amazon expertise), which is building up very strongly – up 70% last year.

Profits and North America

The evidence on profitability is more mixed. In the US profits more than doubled and operating margins rose from 2.5% to 4.3%. So in its home markets Amazon achieved the ideal of very rapid sales growth and much improved margins.

That continued through the first quarter of the current year.

Profits and international

Outside the home markets, the picture is less encouraging. There was still strong sales growth, but that came from the newer developing countries. Sales in Germany fell by around 4% (using average annual exchange rates) over the year. In the UK sales rose around 10%, which is low for Amazon, and well down on the 16% seen in 2014.

On top of that the international businesses continued to lose money. The operating margin was little changed, improving from just -0.4% to -0.3%. The first quarter figures were better, with stronger sales growth and a greater reduction in loss. But there is no breakdown by country published in the quarterly results.

Where next?

It really does look as if there is a greater emphasis on profits at the moment. That is the only way to account for the sales decline in Germany last year. In the UK sales growth slowed as well and the performance of the online sales of non-store retailers in the UK in the final quarter of 2015, as published by ONS, also pointed in that direction. It is hard to interpret the first quarter results because of rapid growth in some of the new countries, notably India.

And what about food?

All this may not just be about profitability for its own sake. Amazon has made no secret of its interest in food retailing. So far its offer has bene restricted to ambient temperature goods and any fresh foods are only available through marketplace sellers. But we know from the evidence of Ocado that setting up a full grocery service is exceptionally expensive and would require a network of warehouses around the UK as well as a temperature-controlled delivery fleet. If it really wants to go that way, then it will need all the profitability it can manage from the rest of the business.

Back to top