R.J. Hottovy: Amazon's had a busy 2017 thus far, but many of the moves the company's made have left investors scratching their heads as they seem to run counter to how the company's built up its e-commerce dominance the past couple of decades. While many of the moves the company's made can be simply looked at as land grabs into the grocery, apparel, or other categories, we do see that a lot of the moves that Amazon's made in 2017 are part of a larger shift in strategy.
Really there's two areas that we're focused on right now: the pivot from Prime member acquisition to Prime member engagement, and making the marketplace more accommodating to third-party vendors. On the Prime membership front we believe the company is embarking in a strategy shift away from Prime acquisition into Prime engagement. We estimate that there are over 80 million Prime memberships in the U.S. today, spanning 67 million households. At that rate of saturation, we believe that it will be just be a few more years before the company tops out and needs to get more engagement and frequency out of those Prime members. We believe this is the primary motivation behind the Whole Foods acquisition, as grocery category tends to be a much more frequent purchase and less susceptible to economy cycles. In addition, the company gets the benefit of expanding its private label portfolio, which tends to be higher margin product; it gets a new source of customer data; and it will allow the company to find new ways to improve the in-store experience with its hardware products.
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R.J. Hottovy does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.