Amazon (AMZN -3.31%) was forced to delay its annual Prime Day shopping event due to the effects of the coronavirus pandemic. Amazon's now scheduled it for Oct. 13-14, and it's going to set a new record for the retail giant. The company could bring in nearly $10 billion in gross merchandise sales over the two days next week, according to an estimate from eMarketer. That's up 43% from last July's record-setting Prime Day.
Here are three reasons why Amazon is about to smash its own record.
1. The accelerating shift to e-commerce
Shopping was already moving online before the COVID-19 pandemic, but with retailers forced to close their doors and consumers trying to stay home more, it truly accelerated in the second quarter. Online sales grew 44% in the second quarter, according to the U.S. Census Bureau, an acceleration from a growth rate in the mid-teens in recent history. Despite operational challenges, Amazon mostly kept pace with the overall e-commerce market.
Importantly, early indications are that the gains from the recent acceleration are permanent, and e-commerce growth ought to remain elevated for the subsequent three quarters before dropping again. Amazon was under-prepared for the surge in demand in March and April, but it's quickly catching up. It's in the midst of expanding its fulfillment network footprint by 50%, which ought to support a record number of units sold out of its warehouses.
With a return to marketing, Amazon ought to also return to taking share of online sales from smaller competitors. So, growth on Prime Day could actually exceed the 44% year-over-year growth we saw for overall online sales in the U.S. during the second quarter.
2. Early holiday shopping
Prime Day will mark the start of the holiday shopping season this year. With consumers looking to avoid big crowds on Black Friday, more people will do their holiday shopping online and spread it out over more weeks, especially as retailers have signaled plans for sales throughout the quarter.
That's important for Prime Day because it means a good portion of sales that might've ended up happening on Amazon's Black Friday or Cyber Monday will move up to Prime Day. And sales on those two days have historically surpassed Prime Day sales for the previous five years.
Amazon is happy to cannibalize Black Friday sales. Part of its Prime Day and general fourth-quarter strategy this year appears to be avoiding massive spikes in demand like it's used to during the fourth weekend in November. Pulling forward sales should enable Amazon to fulfill more orders throughout the quarter than if it started its holiday sales later in the year.
3. Accelerating Prime membership
Prime Day is targeted toward Prime members. If you already have a Prime membership, you're probably going to check out the sales, and if you don't already have a Prime membership, the sales are designed to entice you to sign up.
Amazon has more Prime members than ever in its history, surpassing 150 million globally at the end of last year. More importantly, Amazon CFO Brian Olsavsky said: "Existing Prime member renewal rates improved, and the Prime member growth rate accelerated both in the U.S. and worldwide" during the company's second-quarter earnings call.
And there's good reason for growth in Prime. Prime enables online grocery ordering from Whole Foods, which has seen a dramatic increase in demand during the pandemic. It also comes with Prime Video, which is winning market share from competing streaming video services thanks to its bundling with other Prime benefits. Amazon continues to add benefits to Prime, and members have never gotten more utility out of the membership.
With more Prime members looking to maximize the value out of their subscriptions, Amazon ought to see record traffic to its online marketplace, driving more sales. Combined with the growing secular shift to online sales and the kickoff of an extended holiday shopping season, Prime Day 2020 is sure to set new records for Amazon.