Amazon, a leading tech company, is currently undergoing a challenging phase, affecting those associated with it. Among those affected are people who hold Amazon shares. 

Investors opt for Amazon shares do so for various reasons, including benefiting from:

• Their steady and reliable growth
• The large and loyal market
• Their high security

However, Amazon shares have recently dropped, causing panic among its investors. Due to inflation, Walmart has recently announced its intention to reduce its prices in the second quarter and the rest of its financial year, causing Amazon shares to fall. Walmart is another retail company that holds fierce competition against Amazon for groceries.

That means that Amazon now needs to decide on the best strategy to avoid losses resulting from a further reduction of the price of its shares.

Let’s explore deeper into this situation.

 

The relationship between Low Walmart Prices and Amazon Shares

When Amazon chose to invest in Groceries, it was aware that it would be a huge task to compete against Walmart — the leading retailer of groceries in the US. Though Walmart performs well in the groceries department, it generally does not outdo Amazon. That’s why Walmart’s CEO, Doug McMillon, thinks it is vital for Walmart to emphasize good value, which will help gain a larger market share during the high inflation period.

Inflation, a significant global problem today, has forced consumers to put their money on products they prioritize. Naturally, consumers prioritize groceries over other goods like electronics. Walmart reduced its prices of slow-moving goods leading to the fall of Amazon shares.

 

How inflation has affected customer spending

The inflation rate in the US fell to 8.5% in July. It was unanticipated because it hit a record high of 9.1% in the previous month, which is the highest since the great recession in November 1981. Because of the rising inflation, Walmart noticed a shift in the spending patterns of consumers.

Consumers thus have a preference on what to acquire first due to the high gas and food prices. Compared to its competitors, the prices of essential commodities such as groceries is lowest at Walmart. However, other products like luxury products stay on the store shelves for a long time which is unhealthy for the business. Luxuries have higher profit margins than groceries. 

 

Walmart’s announcement and Amazon’s reiteration

Walmart reported that it would change the profits per share for Q2 to around 8-9% and that of the full year to 11-13%. When announcing the Q1 profit, Amazon’s CFO, Brian Olsavsky, said that the company did not experience any difference in consumer spending. Amazon linked poor earnings to inflation and overcapacity.

Following this announcement, other retailers such as Costco and Target had their shares reduced to 2% and 5% in a matter of hours. Walmart shares experienced their worst since October 1987, on May 17th, 2022. 

 

Amazon’s Remedy

The falling Amazon shares may be bad news to any investor who has already acquired them or planning to. Ideally, Amazon rolled up the 20-1 stock split. It aims to increase the shares while making them cheaper for investors. In such a case, if you had 1 Amazon share, it would split into 20 units, with the cost being one-twentieth of the original price.

The move has no significant repercussions for the company as the net worth of the company will remain the same. The stock will still be trading more than the forecast for this year and ahead of other retailers like Walmart.

 

Future Benefits

In response to the current inflationAmazon decided to split its shares to make them affordable due to high inflation. Inflation will not be around for long. The world economy has gone through difficult phases and recovered. In the long run, it will be a win-win situation for Amazon and its shareholders. The Amazon shares will recover, and you will benefit from greater profits. It can occur in two incidences:

• After the stock split, people may view the stock of Amazon as affordable and thus acquire more stock. It, therefore, increases demand and thus the price.
• When a stock split happens, the market will view the price of the shares from Amazon as increasing. The market thus assumes that the growth will not stop and thus increases demand and prices.

 

Final Thoughts

Inflation has affected the cost of necessary commodities such as fuel and food. Understanding consumer trends is vital for companies. But, they also need to stay competitive. When people are decisive on what to buy, businesses may record losses. Given the stiff competition, those with the best strategy will survive. 

While Walmart chooses to lower the cost of its stock, Amazon is not ready to handle such a loss. Amazon shares are among the most preferred, and implementing a stock split will attract many investors. Amazon will thus safeguard its market share while still maintaining its profit margins.