March 5, 2014, 1:13 PM

Amazon Prime has “room to expand,” a research firm says

Baird Equity Research says 10% of Amazon's physical items are Prime eligible. The firm says Amazon should make more products eligible for Prime through the e-retailer's Fulfillment by Amazon program, a service that lets merchants store inventory at Amazon warehouses with Amazon handling delivery.

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Amazon.com Inc.’s Prime has “plenty of room to expand,” says a research note today from Baird Equity Research that serves as the latest glimpse into the free shipping program that retail rivals are seeking to imitate and counter.

Baird’s Q1 inventory survey estimates that Amazon has made 10% of its physical items available for Prime—that includes 25% of media products such as books and DVDs, and 6% of non-media products. “We believe there is a meaningful opportunity for Amazon to expand Prime selection,” says the note from analysts Colin Sebastian and Rohit Kulkarni.

They say Amazon should make more products eligible for Prime through the e-retailer’s Fulfillment by Amazon program, a service that lets merchants store inventory at Amazon warehouses with Amazon handling delivery to the customer. The number of marketplace sellers using Fulfillment by Amazon increased 65% year over year in 2013, Amazon said earlier this year.

For $79 per year, Prime members receive two-day free shipping on eligible products plus streamed access to tens of thousands of TV shows and movies. Amazon, upon releasing its fourth quarter 2013 earnings earlier this year, said it is thinking about raising that price by $20 to $40 per membership, in part because of increased fuel and transportation costs.

Amazon has not raised the price of Prime since introducing the two-day free shipping program nine years ago, while the number of items eligible for Prime shipment has increased from 1 million to 19 million, chief financial officer Tom Szkutak said during the Q4 conference call. Baird puts the number of Prime-eligible items at 23 million, up 2% from the fourth quarter of 2013.

Amazon is No. 1 in the Internet Retailer 2013 Top 500 Guide.  

The Baird note today also says that Amazon has increased its SKU count 24% year over year in the first quarter. Much of that product growth, the report says, is in categories such as mobile phones and accessories, cosmetics and related items, pet supplies and industrial and scientific goods.

 

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