Amazon.com Inc. expects to improve the delivery times for customers who sign up for its Prime subscription program, cutting free deliveries to one day instead of two, an executive said Thursday afternoon.
In a conference call related to Amazon’s AMZN, +0.03% quarterly earnings report, Chief Financial Officer Brian Olsavsky explained that the company expects profit to take a hit in the second quarter as Amazon ramps up the change to its Prime program.
“We’re currently working on evolving our Prime free two-day shipping program to be a free one-day shipping program,” Olsavsky said, adding that Amazon expects to spend $800 million this quarter to make the change.
Amazon offers one-day delivery on some products now, and even same-day delivery for some purchases. But Olsavsky suggested that the company now expects that the standard free two-day shipping that is the biggest selling point for the Prime subscription plan will be improved to a one-day schedule globally.
“We have been offering obviously faster-than-two-day shipping for Prime members for years — one day, same day, even down to two-hour delivery for Prime Now — so we’re going to continue to offer same day and Prime Now morphing into, or evolving into, a free one-day offer,” he said in response to an analyst question.
Olsavsky said that one-day shipping expanded to more products in the first quarter, and that certain zip codes were receiving broader access to free one-day shipping. He did not say when the one-day shipping program would be available to all customers.
“It’s a significant step it and it will take us time to achieve, and we want to ensure we have good delivery experience for our customers as we evolve this offer,” he said.
“We expect to make steady progress quickly and through the year,” Olsavsky later added in response to a follow-up question from a different analyst. “We’ll have more for you at the end of Q2 obviously.”
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In the first-quarter earnings call last year, Amazon announced that it would increase the Prime membership price to $119 a year, a 20% hike. It was the first time Amazon had increased the price in four years. That increase followed the announcement that Prime had attracted more than 100 million members, a number that Amazon has not updated since.
“We are very happy with not only the absolute membership levels of the Prime program but also the engagement,” Olsavsky said when asked about changes in Prime membership levels Thursday.
Amazon shares gained about 1% immediately after Amazon reported record profit for a fourth consecutive quarter Thursday afternoon, but fell to a slight decline throughout the after-hours session as the company’s prediction of smaller profit in the second quarter was digested. After Olsavsky explained that the Prime change was the key reason for guiding to smaller operating profit, shares returned to gains of about 1%.