Amazon’s (AMZN, Financial) retail sales have been growing in high double digits over the last 10 years, but the growth in international markets has been much slower than in the overcrowded and uber-competitive U.S. market.
In 2006, Amazon’s North America retail sales were $5.86 billion while international sales came close with $4.842 billion. By 2015 that gap widened considerably to $63.7 billion and $35.41 billion.
Granted, the company concentrated on expanding its footprint in the U.S. much more than in countries like China and India during the last 10 years, but the fact that it was able to grow this fast while competing with deep-pocketed brick and mortar stores such as Walmart (WMT, Financial) and Costco (COST, Financial) in its home country is stunning. There are also a lot of reasons to believe that Amazon Prime was and continues to be a crucial factor for its growth in the home market.
Amazon Prime was launched in the U.S. way back in 2005 while the rollout in international markets has been a bit slow. Amazon launched Prime in the U.K., Japan and Germany in 2007, and the India launch happened just this year. Though it’s tough to pin down the exact number – as Amazon still refuses to break out its Prime user base numbers – it is easy to assume that U.S. customers account for the bulk of its Prime membership base.
According to Consumer Intelligence Research Partners, Amazon had 63 million Prime customers in the U.S. by June, a growth of 19 million compared to June 2015.
Once a customer signs up for Prime and pays the $99 annual subscription or $10.99 per month, they are continually incentivized to buy more products from Amazon. Customers look forward to making the most of their investment. According to Time, the average Amazon Prime member spent more than double that of an average nonmember.
“CIRP report estimated that the average Prime member spent $1,500 annually at Amazon versus $625 for nonmembers. That’s a huge gap, giving credence to the theory that perhaps the biggest accomplishment of Prime is that once subscribers are hooked, they more or less stop shopping everywhere else.”–Time
Amazon Prime seems to be the reason behind Amazon’s fast-growing numbers in the U.S. In international markets, where the rollout has been a bit slow, growth is happening at much slower rates. As the Prime membership base grows, Amazon’s retail sales are only going to grow larger. That also explains why Amazon has been adding service after service to its Prime offering – to continually keep making it a more compelling product.
With the model now proven at home fiscal after fiscal for 10 years, I expect the company to step up its efforts in key markets such as India, which is touted to eventually become Amazon’s second-largest market after the U.S.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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