SAN FRANCISCO -- Amazon.com said it may raise the annual price of its popular Prime subscription by as much as $40 as the world's largest Internet retailer battles higher shipping costs.
During a conference call with analysts on Thursday, following disappointing quarterly results, Amazon said it may increase the cost of Prime in the U.S. by $20 to $40.
The service, which includes free two-day shipping on most products from Amazon.com, currently costs $79 a year in the U.S.
Amazon has become the dominant online retailer by focusing on getting products delivered to customers quickly and cheaply. However, as fuel prices have climbed, the company has struggled to keep a lid on the cost of making those deliveries.
Amazon said on Thursday that its net shipping costs jumped 19% to $1.21 billion in the fourth quarter. That was 4.7% of net sales, up from 4.5% a year earlier. Expenses like this contribute to the company's wafer-thin profit margins, which have been a concern on Wall Street for years.
"They can't keep losing so much. This is their profit margin," said Colin Gillis, an analyst at BGC Partners. "Drones aside, they have to find a way to get the package from the warehouse to the user in a timely way but also in a cost-effective way."
Amazon may lose some Prime subscribers, especially if the annual cost goes above $100. However, Gillis and other analysts expect the impact to be limited.
"Where are these customers going to go? I want some competition because they've got me hooked on Prime. Hello Walmart or Alibaba, somebody else please step up," Gillis said
"They will use some Prime members, but most people will probably take it," he added.
"Pricing power!" Colin Sebastian, an analyst at RW Baird, wrote in an email to USA TODAY when asked why Amazon would make such a move. He expects few Amazon customers to cancel their Prime subscriptions.
"Why would they cancel?" he added. "Keep in mind that a lot of Prime paying members allow family members to use the service as well."
That may reduce the impact of a price increase, because the benefits of the subscription are spread among more customers.