Amazon Prime, the lifeline service for hundreds of millions who rely on the world’s biggest retailer for food, electronics, clothing and even books to be delivered to their front doors with the click of a button, may soon cost more.
Inflation, rising shipping costs, and big investments into everything from automated delivery to new brick-and-mortar offerings like a planned retail clothing store may push Amazon (AMZN) to raise its Prime fee soon.
A Prime membership currently costs $119 a year. Amazon last raised the price in 2018.
How Amazon Takes Customers From Walmart, Target, and Costco
"After a period of time, it should increase," Greg Greeley, who ran the Amazon Prime program between 2013 and 2018, told Business Insider. "There has been a lot of upward pressure. So a reset due to inflation for the cost of shipping might be appropriate."
Prime offers a package of perks, including free delivery as well as video streaming for a fixed monthly or annual fee. Amazon initially charged $79 a year in the U.S. when it first launched in 2005, but has raised its price twice since then (to $99 in 2014 and $119 in 2018).
A Prime Time to Boost the Prime Membership Fee
The program has become even more popular during the pandemic, something Amazon Chief Financial Officer Brian Olsavsky noted on a recent post-earnings conference call has already prompted the company to spend more to ensure it has enough fulfillment capacity to deliver everything the service offers its 200 million-plus users and then some.
“Recall that we saw very high unit volumes in Q4 of last year, and then our fulfillment centers are running at close to 100% capacity as we work to add physical capacity to match demand,” Olsavsky said.
Will 2022 Be the Year for Amazon Stock to Hit New Highs?
“It's all, to us, part of a flywheel where we service customers. We do it in an efficient way, and we earn their trust in their future business, and we fight that battle every day. And we look to expand the Prime program to build that flywheel."
And the list of costs keeps growing. Amazon on Thursday announced plans to open a clothing store in a Southern California mall later this year, a first for the online behemoth and a fresh challenge for already struggling traditional retailers.
The 30,000-square-foot store similar in size to a Kohl’s but smaller than more traditional department stores will sell women’s and men’s clothing as well as shoes and other accessories. It will open at the Americana at Brand mall in Glendale, California.
But a Prime Price Increase May Not be a Done Deal - Yet
To be sure, a Prime price increase isn't a for-sure done deal. Amazon insiders told Business Insider that concerns over consumer blowback and from regulators if it raises prices too much too soon could keep that $119 fee in place a while longer.
Indeed, Olsavsky alluded to following Amazon's most recent earnings results, noting the company's constant internal tug-of-war to make itself more efficient and cut costs as well benefit from other revenue-generating offsets like advertising are all part of the bigger picture to keep a lid on what it charges consumers.
Amazon Rings Up No. 1 Grocery Spot for Second Year in a Row
"So when you look at retail, it's certainly expensive right now, especially with the costs I've laid out in Q3 and Q4 for us to service that business," Olsavsky said. "However, we have other monetization vehicles, including advertising that, if we do well, become a benefit to customers and to advertisers at the same time. That's what we work on. So that is an important part of our profitability structure.
"But we see ourselves as the shock absorber absorbing a lot of the costs so that the customer is not impacted and sellers are not impacted. And again, it's just quite limited options in the short run to impact your cost structure. Most companies would delay shipment or incur -- add fees or something. We don't think that is customer-centric nor productive, and we will get through this period and then we are committed to getting our cost structure down."
