It’s not easy to be a brick-and-mortar retailer, even for Amazon. The Seattle-based giant beat earnings expectations on Thursday, but one negative growth number in the report stands out—the decline in physical store sales.
Amazon reported a 3% year-over-year decline in physical stores sales on Thursday. This is the first year-over-year comparison with Amazon’s ownership of Whole Foods, as the $13.7 billion acquisition closed in August 2017. The deal highlights the e-commerce giant’s determination to enter the physical retail space. The efforts have continued in multiple formats including its cashless stores Amazon Go, Amazon bookstores, and Amazon 4-star store.
On a call with analysts, Amazon’s head of investor relations David Fildes attributed some of the decline to timing issues. Specifically, an adjustment to Whole Foods’ fiscal calendar ultimately added five extra days worth of sales to Q4 results a year ago.
And then there’s another adjustment that that’s arguably as much an e-commerce transaction as it is a brick-and-mortar transaction.
“Online orders where people go to the Prime Now app and then order for delivery or pickup at Whole Foods stores does count or is counted in the online stores component of revenue,” Fildes said. “So if you adjust for those, what's the Whole Foods growth year-over-year on an apples-to-apples basis was approximately 6%.”
In the past year, Amazon has expanded free grocery delivery and pickup from Whole Foods through Prime Now, so customers can order on the Prime Now app and get groceries delivered. Grocery delivery is available in more than 60 U.S. metros and pickup service is available in over 20 U.S. metros. Amazon says the pickup service will be expanding to more regions.
The bottom line is Whole Foods isn’t exactly delivering hot growth numbers.
“Much of this is because Whole Foods’ proposition is simply not up to scratch,” said Neil Saunders, Managing Director of GlobalData Retail. “Basics and commodity products still cost way more than at rivals like Target, and this is one of the reasons perceptions that Whole Foods is needlessly expensive have persisted.”
Amazon stock first went up, but slumped 4.9% in after-hours trading after the earnings announcement.
This story has been update with comments from the earnings call.
Krystal Hu covers technology and trade for Yahoo Finance. Follow her on Twitter.
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