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The Genius of Amazon's October Prime Day

By Adam Levy – Oct 1, 2020 at 10:25AM

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This year's Prime Day has a different goal than in prior years.

Amazon (AMZN -1.57%) had to delay its Prime Day shopping holiday from its usual midsummer date this year due to the impact of COVID-19 on its business. With surging demand and lower throughput in its warehouses, Amazon simply couldn't handle the record-breaking shopping volume it gets on Prime Day every year.

The shopping holiday is now scheduled for Oct. 13-Oct. 14, and the timing is a genius maneuver from Amazon as it prepares for Black Friday and Christmas shopping.

A truck with an Amazon Prime trailer.

Image source: Amazon.com.

Stretching out the holiday shopping season

Amazon's biggest challenge for the holiday shopping season will be keeping up with demand. E-commerce saw massive share gains over brick-and-mortar shopping in the second quarter, and it's expected to remain elevated. It could even take another step up in the fourth quarter as competitors like Walmart (WMT -1.93%) and Target (TGT -2.24%) keep their doors closed on Thanksgiving to limit crowds.

Amazon's still working on improving its ability to ship items out of its warehouses quickly. "We're not back to where we were pre-COVID. We don't think we're going to be back in the short run," CFO Brian Olsavsky said on Amazon's second-quarter earnings call in late July. 

That's why starting the holiday shopping season in mid-October with Prime Day is a genius move. The typical July timing for Prime Day is meant to boost sales in what was historically a slow sales quarter for Amazon and the rest of the retail industry. But this year, Prime Day will serve an entirely different purpose. This Prime Day is meant to pull sales away from Black Friday in November.

Spreading sales across multiple weeks will allow Amazon to keep the load on its warehouses and fulfillment centers manageable. After Prime Day, Amazon's planning to run three weeks of sales starting October 26, further spreading out demand before Black Friday and Cyber Monday at the very end of November.

Ultimately, taking sales away from late November should enable Amazon to make the most of its fulfillment capacity. Even so, Amazon's expecting a big fourth quarter. It plans to increase its fulfillment network footprint by 50% by the end of the year. So the fact that it feels the need to spread sales out despite that increase means the fourth quarter could shatter Amazon's sales record from last year.

Amazon's not the only retailer trying to spread out its sales

Both Walmart and Target are planning to offer extended holiday sales. Target will run a competing sale to Prime Day and offer deals throughout the month of November. Walmart says it's already providing deals on items it expects to be in high-demand this holiday season. Both will have limited store capacity for shoppers, so they're looking to spread sales out and move more sales online.

Walmart's hiring 20,000 seasonal workers for its e-commerce operations. While that represents a significant step up, it pales in comparison to Amazon's plan to fill 100,000 new permanent positions.

Walmart also launched its new loyalty program Walmart+, which offers unlimited grocery delivery, fuel discounts, and the ability to use its scan and go technology in stores. Still, that leaves much to be desired compared to Amazon Prime. 

Both competing retailers may be able to fulfill orders in a more timely way than Amazon, thanks to their networks of brick-and-mortar stores. But the vast majority of their sales come in the store, which will be hampered by COVID-19 this year. As long as Amazon successfully spreads demand across the quarter, it ought to gain share of holiday sales in 2020 as more gift shopping moves online.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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