Amazon is pinning its hopes on a strong Prime Day sales event this year as the $ 1tn ecommerce giant seeks to rejuvenate slowing sales growth at a time when consumers are cutting back on discretionary spending.
The two-day event, which runs on Tuesday and Wednesday this week, is forecast to generate sales globally of more than $ 12.5bn – an increase of 17 percent from last year, according to research group Insider Intelligence.
It comes at a critical juncture for Amazon and the broader US retail market as investors scramble to measure the impact of inflation and rising interest rates on consumer spending, as well as the effect of persistent supply chain problems.
Last month, Target cut its profit outlook for the second time in less than a month as the US retailer said it would cancel orders and further slash prices to clear excess inventories on the back of a shift in consumer spending.
“I’m putting my bet on [Prime Day sales] being lower than expected, ”said Guru Hariharan, a former Amazon executive and now chief executive of ecommerce management software CommerceIQ. “And that will indicate a lower consumer sentiment. That will then give a bellwether for total retail, and in turn a bellwether for the entire economy. This is the tip of the spear, ”he added.
First introduced in 2015, Amazon’s Prime Day – inspired by Alibaba’s Singles Day event in China – quickly established itself as Amazon’s biggest sales day of the year. Other retailers, piggybacking on Amazon’s promotional efforts by offering their own deals, also enjoy billions of dollars in collective sales boosts.
This year’s event falls at a key time for Amazon’s chief executive Andy Jassy who took over a year ago from founder Jeff Bezos and is navigating a number of high-profile challenges facing the company.
Since then, Amazon’s overall revenue growth has slowed this year to its lowest rate for two decades. In its most recently reported quarter, sales in the company’s online store had fallen, year on year, by 3.4 percent.
Amazon’s stock has fallen by more than 30 percent since the start of the year, in part due to escalating operating costs and an acknowledgment from the company that it had overexpanded during the pandemic coronavirus. Jassy has also seen a string of executive departures, most notably Dave Clark, one of the architects of Amazon’s logistics network, who left abruptly in June.
Prime Day offers a chance to improve those fortunes. Promotional efforts in the run-up to the event touted “millions” of deals across 24 countries, with discounts of “up to 79 percent”. An Amazon spokesperson noted that “over the past three years, Prime Day event sales have increased each year, third-party seller sales have increased each year, and Prime members have spent more each year”.
As well as attracting huge amounts of traffic for on-the-day deals, the event is a crucial part of Amazon’s larger strategy of signing up as many customers as possible to its Prime membership scheme, which this year has seen its price increase from $ 119 to $ 139 per year. Prime members typically spend two to three times more throughout the year than non-Prime customers, according to research by Jefferies.
While a rise in sales is forecast for Amazon’s Prime Day this year, the estimated growth is lower than the 60 percent plus growth seen in 2018 and 2019. Much of this year’s rise has been credited to Amazon’s decision to hold the event later this year. year than in 2021, in a move designed to capture back-to-school spending.
“The shine has gone,” Hariharan said. Merchants used to see “about 3x to 4x volume” on Prime Day compared to regular shopping days. “Now we’re seeing more like 2x.”
Amazon has also been hit by supply chain problems. Items appearing as “out of stock” on Amazon have reached around 5 percent, compared to 4.4 percent a year ago, according to research by CommerceIQ. Inflation has contributed to across-the-board price increases on Amazon’s store of around 9 percent, with Amazon in April attaching a 5 percent fuel surcharge to offset increased costs in its delivery network.
Amazon is not alone in its challenges. In May, Walmart lowered its earnings guidance, blaming higher wages and increased fuel costs, prompting its worst one-day stock price slump since October 1987. Meanwhile Target has sought to bigfoot Amazon’s Prime Day, starting its Deals Day on Monday – one day sooner than Amazon – as it looks to shift stock off its shelves.
In a pre-Prime Day survey conducted by marketing company Tinuiti, which polled 1,000 Prime members, 63 percent said inflated product prices would discourage them from making some purchases on Prime Day this year.
A report by Insider Intelligence in June declared the pandemic ecommerce boom to be “over”. “Two years into the pandemic, consumers aren’t quite as flush with cash, discretionary budgets are shifting back to travel and entertainment, and shoppers are comfortable in stores again,” it wrote.
The uncertainty of the year ahead has seen Amazon lay the groundwork for what could be a second Prime Day-like event in the fourth quarter – which would be the first time it would hold two such events in the same year.
The company has begun inviting sellers to submit “lightning deals” for an event later this year, according to Tinuiti. “With those kind of indicators, that means there is potentially some form of a deal day happening in the back half of the year,” said Nancy-lee McLaughlin, senior director of marketplaces at Tinuiti.
A spokesperson for Amazon said the company would not comment on “rumors” of a second full Prime Day event this year.
But such a move would bring it in line with 2020s Prime Day, which had been delayed due to the start of the pandemic, and was used as a way to spread the logistical burden of Christmas orders across a longer period of time.
“Prime Day is not going anywhere,” added McLaughlin. “I think we’re going to continue to see attention grow.”