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Analyst: Amazon Prime subscribers could reach 70m by end of 2016

CHICAGO—Amazon Prime subscribers will number between 60 million and 70 million by the end of 2016, up from estimates of about 54 million at the end of last year, Piper Jaffray senior research analyst Gene Munster said here Tuesday at an Amazon-themed workshop ahead of this year’s Internet Retailer Conference + Exposition.

The Prime shipping program and the complementary Fulfilled by Amazon third-party seller delivery service are the engines driving customer adoption, Munster said. “Prime Now [free two-hour delivery] is currently available in 37 cities, and Same-Day Delivery is now is 28 cities,” Munster noted. “Amazon is trying to take away the advantage of brick-and-mortar, which is instant gratification.”

Prime’s success is prompting Amazon to bolster its delivery capabilities, Munster said, noting that the company now operates 123 fulfillment centers nationwide, adding new facilities at a rate of about 15 per year. Amazon also operates 23 sort centers (waystations between fulfillment sites) across the U.S.

“Amazon is relentless in terms of investing in shipment,” Munster said, noting that the company spent about $11.5 billion on shipping services and facilities in 2015, corresponding to about 11% of total annual revenue. By contrast, Amazon’s channeled about 10% of revenue into its shipping efforts in 2014.

While Amazon is notoriously tight-lipped about Prime metrics, roughly half of all U.S. households currently subscribe to the service, Piper Jaffray said earlier this year. Prime membership is concentrated (and growing fastest) among wealthier households, the investment firm added: More than 70% of households with annual incomes topping $112,000 have a Prime membership.

Prime members are also extremely sticky. About 75% convert, compared to 13% of non-Prime members, according to a mid-2015 study from Millward Brown Digital.

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