Amazon expected to be the big winner this holiday season as uncertain economy leads customers to hunt for deals online; Amazon seeks to lure customers away from brick-and-mortar stores

Allison Oesterle

LOS ANGELES , November 22, 2011 (Industry Intelligence) – As an uncertain economy encourages customers to hunt for deals on-line, Amazon is expected to emerge as the big winner this holiday season, The Wall Street Journal reported on Nov. 21.

According to the article, Amazon projects that its fourth quarter revenue will increase by 27% to 44%, and could potentially rise to US$18.7 billion. Despite these gains, Amazon also projected that it would have an operating loss of up to $200 million during that same quarter as Amazon continues build new warehouses and expand its digital repertoire.

Although Amazon’s gross margin has been hovering at roughly 23.5%, its operating margins have been getting smaller: in the third quarter of 2010, Amazon’s operating margin was 3.5%, compared with this year’s third quarter operating margin of 0.7%.

Amazon’s Kindle Fire tablet, which is less than half the price of an iPad, may give Amazon as an edge this holiday season. Surveys have shown that tablets are the most desired holiday gadget, and analysts have predicted that, over the next two months, Amazon will sell 5 million Kindle Fire tablets.

Brick-and-mortar stores like Best Buy Co. Inc., Target Corp. and Wal-Mart Stores, Inc., are trying to adapt their traditional business models in order to accommodate the rise of Internet retail.

Brick-and-mortar retail chains face challenges due to consumers’ propensity to research exactly what items they wish to purchase before heading out to buy them. Some shoppers even use their mobile devices in-store to see if other retailers have the same item for a better price.

According the Internal Council of Shopping Centers’ sales projections, mall sales during the 2011 holiday season are expected to rise by 2.2%, less than the 5% increase during the same time last year. They also predict that sales at large chain stores that have been open for a year or more will go up by 3.5% during the 2011 holiday season, in comparison to the 3.8% increase experienced by stores in that same category during the 2010 holiday season.

The primary source of this article is the Wall Street Journal, New York, on Nov. 21, 2011.

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