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Did Amazon Slash Its Way to a Profit?


The sheer volume of packages brought UPS to its knees, but cutthroat competition may hurt profits.

The image of UPS's (UPS) brown-suited army sinking under a mountain of holiday gift packages might warm the hearts of investors in Amazon (NASDAQ:AMZN) or Wal-Mart (NYSE:WMT). It ought to mean that the holiday season was better for online sales than anybody-notably, the shipping companies-anticipated.

It might not be that good.

In fact, the delivery company's failure to get every single package to homes on time for the holiday might simply reflect the effects of retailers' extreme last-minute discounting, combined with a determination to push the deadline for Christmas delivery to the ultimate last hour that the warehouses could get those boxes out the door.

In the case of Amazon, that drop-dead date was Dec. 23.

Amazon and Wal-Mart were two of the major retailers that have been cited as causes in the last-minute breakdown at UPS and, to a lesser extent, at FedEx (NYSE:FDX).

Amazon effectively confirmed its role in the overload by boasting, in a press release on Thursday, that its Amazon Prime membership program, which includes free two-day shipping, set records for new sign-ups this season, with more than 1 million customers worldwide added in the third week of December alone.

One of its "fun facts" for the season was that the number of Amazon Prime items shipped during the season could translate to at least one gift for every household in America.

Amazon is never good at specifics in its public pronouncements. Just FYI, that means at least 115 million packages.

The company offered plenty of other tidbits, like this one: Amazon customers purchased enough Crayola Marker Makers to draw a line around the world four times.

We can't help you with that one, as we don't know precisely how far a Marker Maker marks.

That is the problem with translating Amazon-speak, and it's important if you're waiting for the day when the colossus of worldwide retail finally starts making a profit. We don't actually know how many Crayola Marker Makers it sold, or how much profit it made from each box.

As we know now, not all of those packages actually made it to doorsteps in time for Christmas. The shipping companies, and particularly UPS, had to acknowledge that they ran out of time under the weight of unexpected volume.

The final-days price cuts and last-minute free-shipping deals both were notable phenomena in this holiday season, when retailers online and in the real world scrambled for the last buck in the face of research that projected mediocre sales at best.

American consumers, most observers said, were a little more upbeat lately, but they were still being cautious, picky, and frugal.

One of the first post-Christmas sales numbers out, from MasterCard Advisors SpendingPulse, confirmed that assumption.

Its data said retail sales overall rose 3.5% this year, boosted by deep discounts. The National Retail Federation's projection was for an increase of 3.9% overall for the last two months of the year compared with the numbers a year ago.

Another early take, from market tracker ComScore, looks better for online sales alone. It said online purchases made by desktop computer users were up 10% from November 1 through December 22. It had forecast 14% growth.

Online retailers saw a 16.5% jump in sales year-over-year on Christmas Day alone, according to the IBM Digital Analytics Benchmark.

How frugal were shoppers being? Well, a price marked 50% off seemed to have been "the price of entry" this year, an analyst for Nomura Securities said in a note to clients on Tuesday.

They got their 50% off, and better from many retailers.

And that raises another question for all of them: What do you do for an encore?

The holiday season is by no means over. The post-Christmas sales have begun.

That means Wal-Mart has rolled out its Super Savings Celebration, with clearance, rollback, and special-buy items. Amazon has its Year-End Deals going, with 40% to 70% off in various product categories. And Best Buy (NYSE:BBY) has its Yellow Tag Sale Event.

So, the price cuts continue at least until the New Year. We'll have to wait another month for the quarterly earnings announcements to find out just what all those sales added up to in profits.

Related stories:

How Amazon and eBay Stole Christmas

Google Has Big Plans for Google Now

Google's Chromecast: My Favorite Gadget of 2013

No positions in stocks mentioned.
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