Is there a place for Amazon Prime Day in a pandemic-challenged world?
Amazon created Prime Day in 2015 as a way to boost sales during what traditionally was a slow time of year – the middle of July.
The event, with deep discounts offered on electronics and household goods, not only was a good way to lure new Prime members, but it served as a trial run for the holiday season, letting Amazon see how it performed during at a time of peak demand.
Prime Day has grown each year from that first 24-hour event in 2015, where members bought 34.4 million items, to a two-day event last year that generated close to an estimated $6 billion in sales, with 175 million items sold.
According to Amazon, last year’s Prime Day was bigger than Black Friday and Cyber Monday combined.
But now, with Amazon facing a surge in demand that it couldn’t plan for, and that it is having trouble meeting, does it make sense to go ahead with a sales event created to artificially spike demand?
“Unlike a predictable holiday surge, this spike occurred with little warning, creating major challenges for our suppliers and delivery network,” Jeff Bezos said in his annual letter to shareholders, released today.
The letter outlined efforts Amazon has made to meet the demand, and protect its workers, and commitments to ongoing company initiatives. It does not mention Prime Day.
The Wall Street Journal reported this morning that Amazon has cancelled promotions for Mother’s Day and Father’s Day because it already has more demand than it can handle.
Reuters reported on April 3 that leaked notes from a daily meeting of executives showed Amazon plans to delay Prime Day until at least August. The notes cited a potential impact of $100 million if Prime Day is delayed, and said the impact could be as high as $300 million, according to Reuters.
Amazon can weather that impact. Harder hit will be the brands and Amazon third party sellers that typically participate in Prime Day, and generated about a third of the estimated $6 billion in sales last year.
While Amazon doesn’t reveal how much Prime Day generates in sales. Coresight Research estimated that it generated $5.8 billion in sales in 2019, up from $3.9 billion in 2018.
Amazon’s third party sellers and vendor brands have a lot invested in the Prime Day decision, and they likely will take a financial hit if the event is cancelled, according to a report released today by e-commerce performance analytics firm Profitero.
Third-party sellers and brands have come to depend on the annual mid-summer event to boost their sales volumes and to attract new customers.
Profitero surveyed e-commerce brands and sellers in mid-March, just as much of the U.S. was falling under stay-at-home orders.
Over three-fourths of the brands said Prime Day significantly boosts their unit sales; more than half said it is a valuable way to drive brand awareness, and 69% said acquiring new customers is one of the top reasons they participate in the event.
Amazon, when contacted this week, declined to comment on its plans for Prime Day. An Amazon spokesperson said the company did not have any information to share at this time.
Keith Anderson, senior vice president of strategy and insight at Profitero, is betting Prime Day will happen, in at least some form. “But when, and with what constraints? That’s not really clear,” he said.
The announcement this week by Amazon that it was allowing more sellers to resume shipping non-essential items to Amazon warehouses for fulfillment is a positive sign that Amazon is getting better at coping with the pandemic-driven demand, Anderson said.
At the time of the Profitero survey, the brands and vendors were fairly optimistic about Prime Day 2020. More than half – 56% – said they expected Prime Day to be successful because the COVID-19 crisis is causing more consumers to shop online; 41% said they are proceeding with their Prime Day preparations as planned and 23% said they were stocking up on items for their planned promotions.
Since the survey was taken, however, stay-at-home orders have been extended through April, and in some areas could last through June, and unemployment numbers have risen.
If the current high level of demand Amazon is facing continues, it could decide that its doesn’t want to further boost demand with Prime Day sales, said Jason Murray, a former vice president at Amazon who is now the co-founder and CEO of Shipium, a startup that is working to help direct-to-consumer companies modernize their supply chains.
Unlike Prime Day, which Amazon plans for each year, bringing in extra staffing and boosting fulfillment capacity, the unexpected COVID-19 crisis and resulting surge in orders meant Amazon had to react to a spike in demand with no lead time to prepare, Murray said.
“Everyone has been challenged with this coming out of nowhere and not having any time to ramp up,” he said.
If Amazon proceeds with Prime Day 2020, Murray said, he doesn’t see them postponing it later than August, because a later date would put Prime Day too close to the holiday shopping events.
Anderson and Profitero, while cautiously optimistic that Prime Day 2020 will happen, are still advising brands to have a contingency plan in place in case it is significantly delayed or cancelled.
The COVID-19 crisis has, in effect, made every day a Prime Day, the report states, “with wildly fluctuating supply and demand dynamics.”
As a result, according to Profitero, brands have to have a “promotional season mentality every day” to survive the crisis.
Profitero is recommending that brands and sellers try to drive demand away from out- of-stock items and to the products they have in stock. They also should expand beyond Amazon to try selling on smaller, lesser-known e-commerce sites, because consumers are exploring those sites when they experience shipping delays or out-of-stocks on Amazon.
“It might be smart to accelerate engagement with smaller, but innovative players, especially those with local fulfillment capabilities,” the report states. “Some that we’ve been paying close attention to include GoPuff, Mercato, Rosie, Boxed, Thrive Market, and Grove Collaborative.”
Even if Prime Day happens, Anderson said, it is hard to predict now what consumer demand will be like in the summer and fall.
With rising unemployment, he said, “we can assume there will be relative decline in demand for discretionary goods, and a relative increase in demand for essential goods, but we just don’t know yet.”
On Prime Day last year, Amazon sold more Echo Dot, Fire TV Sticks, and Alexa devices than ever before. But, around the world, items like dishwasher detergent, Diet Coke, Dove soap, and Roomba vacuum cleaners also were Prime Day bestsellers.
This year Amazon has to decide it Prime Day is an essential activity.