Spotlight: Amazon — Low-Income Sales & Healthcare

by Evelyn Donatelli

Amazon ($AMZN) began 2 initiatives in 2017-2018 which appear to have impact capacity to benefit consumers. First, the ongoing “retail war” for the low-income demographic has taken on a new life in the competition between Amazon and Walmart ($WMT). Second, Amazon’s joint venture with JP Morgan ($JPM) and Berkshire Hathaway ($BRK.A) to reduce healthcare costs for the companies’ employees (and possibly larger population by extension).

Walmart, the traditional dominant player in the low-income space, faces challenges from Amazon, which has began offering lower-priced Prime options for EBT (Electronic Benefits Transfer) or Medicaid card holders. Likewise, Walmart is taking on Amazon’s market share in the higher-income demographic, offering its own private-label clothing line at a higher price-point and initiating a partnership with Lord & Taylor. As companies compete to offer discounts to lower-income individuals, who wins? For now, both Amazon and the customer appear to be benefitting. Amazon’s low-cost Prime membership, $5.99/month (as opposed to regular price $12.99/month), is available to individuals with EBT cards, which are the debit cards funded by SNAP, also known as food stamps. Currently more than 42M Americans, or 12.5% of the population, receive SNAP.

This low-cost Prime membership is also available to customers on Medicaid, which is relevant as Amazon continues its foray into healthcare. Throughout 2017, Amazon applied for and received wholesale pharmacy licenses from at least 12 US states, including New Jersey, Michigan, Connecticut, Nevada, Arizona, New Hampshire, Oregon, Tennessee, Idaho, Louisiana, and Alabama. Amazon’s licenses specifically allow it to ship durable medical equipment from its Indiana offices and more broadly position the company to become an intermediary between pharmacies and health care providers, a position known as PBM (pharmacy benefits manager). This position is the role that the joint venture “independent company” from Amazon, Berkshire Hathaway, and JP Morgan, seeks to leverage in order to secure “reasonable medical costs” for their employees.

Though lower-income consumers are shifting to online shopping, they constitute a smaller base than their higher-income counterparts, which is the cause of Amazon’s competition with Walmart and traditional brick and mortar alternatives. Only one in five low-income Americans say they do “a lot” or a “fair amount” of shopping online, which is less than ⅓ as many as those making $100K or more annually, and this number is smaller than it was 2 years ago  Amazon’s 45% discount for EBT and Medicaid card holders stands to save lower-income individuals money on everyday household goods, clothing & shoes, as well as rendering other individual prescriptions from other providers unnecessary, such as video and music services. Though, these benefits may be mediated by the so-called “Prime Trap”, referring to the fact that Prime members spend more than “casual” Amazon users. It will be important to monitor the success of this $5.99/month initiative and, if possible, its effect on household debt of lower-income families.