Dive Brief:

• Amazon on Thursday said that third quarter net online store sales rose just 3.3% to $49.9 billion, as physical store sales rose 13% to $4.3 billion and net sales from marketplace services rose 19% to $24.3 billion. Subscription service net sales rose 24% to $8.1 billion.

• Overall net sales in the period, including its AWS cloud unit, rose 15% to $110.8 billion. Operating expenses surged, with fulfillment costs up 25.8%, according to a company press release. 

• Rising shipping, fulfillment and labor costs, plus expenses tied to creating streaming content, took their toll. Operating income fell 21.6% to $4.9 billion, and net income tumbled 50% to $3.2 billion.

Dive Insight:

Amazon's disappointing results show that not even the e-commerce giant can escape the realities in retail. For the company, and e-commerce in general, the pandemic-related rise in online sales has ebbed as vaccinations have allowed people to return to more normal habits, which include shopping in physical stores.

Amazon's retail sales in the period (as opposed to its service and cloud unit sales) were among its weakest ever and, "considering that total US online sales grew by 7.9% over the same period, it signifies that Amazon is slightly underperforming the wider digital market," GlobalData Managing Director Neil Saunders said in emailed comments.

On a more positive note, Amazon's physical store sales, which applies in-store results across its retail locations, the vast majority of which are Whole Foods Market sites, increased 13% over last year's Q3, to more than $4.2 billion. The increase underscores the boost to in-person shopping as COVID-19 vaccinations have rolled out and restrictions have lifted.

The quarter marked Andy Jassy's first flying solo as CEO, and he probably would have liked to report a better performance, according to Andy Halliwell, senior director of retail at digital consultancy Publicis Sapient, who noted that Amazon focused on the superior results at its AWS cloud business and teased early news about its new Astro robot, which Halliwell believes was "a way of deflecting away any negative stories about other parts of the business," including not just the retail sales and profit declines, but also "the ongoing noise around accusations of ill-treatment of staff in warehouses."

"The negative news came from the core of their ecommerce marketplace sales, which had a poor quarter blamed on supply chain issues with shipping from China for many of their Marketplace Sellers and Drop-shippers, along with port congestion, lack of haulage, shortages, and ongoing manufacturing issues in countries like Vietnam," Halliwell said in emailed comments. 

While there are problems unique to Amazon reflected in the company's third quarter, other retailers should take heed, Saunders warned. 

"Many will face the same issues as Amazon: bite the bullet and take a hit on the bottom line or try to slash costs and maintain profitability," he said.