Prognosticators are calling for big numbers from Amazon (AMZN +2.05%) Prime Day this year. The two-day shopping holiday on Oct. 13 and 14 could bring in as much as $10 billion in sales, according to eMarketer, with $6.2 billion of that coming from the U.S.
Prime Day has become such a big event in the retail industry that competitors, including Walmart, Target, and others, are copying Amazon with their own simultaneous sales, hoping to capture a piece of the shopping frenzy.
Still, 2020 is a strange year for a number of reasons. Prime Day usually runs in July, but Amazon delayed it this year after the e-commerce titan was overwhelmed with demand in the early months of the pandemic. Since then, the company has opened up more fulfillment capacity, allowing it to meet additional demand from Prime Day, and some of the pandemic-driven surge has now moderated.
Still, despite forecasts of blowout sales from Prime Day, there are reasons to believe that the shopping holiday may not live up to the hype.
Image source: Amazon.
1. Consumers are distracted
There's a reason Amazon usually holds Prime Day in July. Not only is there a lull in the retail shopping calendar before the back-to-school season, but customer interest is also ripe for the picking. Office work slows down, kids are off from school, and people generally have more time on their hands for distractions like online shopping.
This year, that's far from the case. Many Americans are dealing with unusual daily routines and the stress of working remotely. For parents, coping with remote or hybrid school is an additional challenge, and others have had their lives turned upside-down from a possible job loss, a decline in income, or a move to new location as a result of the pandemic. The ebb and flow of normal life has been one of many victims of COVID-19, and that means that Amazon Prime Day probably isn't as big a priority for many Americans as it would normally be.
For an example of what happens when a big consumer-facing event is moved to another season, take a look at the NBA Finals. Viewership for the championship series was down roughly 50% from a year ago, despite the presence of LeBron James and the Los Angeles Lakers. There's no single reason for the ratings plunge, but analysts have mostly blamed the calendar shift.
NFL ratings are also down about 10% through the first four weeks of the season, another sign that Americans are focused on taking care of their day-to-day lives with less time even for welcome diversions.
Google data for the week isn't complete yet, but it appears to show declining interest for Prime Day this year. In fact, Google searches peaked in 2018, indicating that consumer fatigue over the event may have already set in last year.
Overall, the stresses of the pandemic aren't likely to work in Amazon's favor this Prime Day.
2. The pull-forward effect
There are a number of reasons why Amazon holds Prime Day. It acts as a reward for existing Prime members, and it gives the company an opportunity to push its own devices like the Echo and Ring. But the biggest motivator is probably the opportunity to add new Prime members, which is the biggest driver of Amazon's e-commerce growth since members spend much more with the company than nonmembers.
Last year, the company set a record for Prime sign-ups during Prime Day on July 15 and nearly beat it the following day, though it did not say how many new members it added.
But the pandemic itself has probably been a better motivator to join Prime for holdouts than Prime Day itself. Among Prime's benefits are free one-day delivery on millions of items, free two-hour delivery from nearby Whole Foods locations, and free access to streaming on Prime Video. All of those benefits are well suited to life during the pandemic and have been in high demand, so it makes sense that Amazon would have already seen a wave of new Prime members earlier in the year. That may be one reason sales soared 40% in the second quarter with North American e-commerce sales up 43%.
At Netflix, another company that saw business spike in the early days of the pandemic, co-CEO Reed Hastings suspected that subscriber growth would slow significantly in the second half of the year, because so many customers had joined in the first half. He surmised that if the effects of the lockdown weren't enough to persuade you to join the service, then you would be unlikely to join just a few months later. The same thing is probably true for Amazon Prime.
In a different sense, Prime Day may also just be pulling forward sales that would have taken place during the holiday season, meaning those sales may pad Amazon's Prime Day numbers, but there's no actual net gain since the company would have recorded them later in the year.
3. Returns will create a logjam
July is also an ideal time to hold Prime Day, because it's months away from the holiday shopping season, allowing marketplace sellers and Amazon itself the ability to ramp up and down for each occasion separately. They won't have that luxury this time around.
Returns from Prime Day, especially, will be tricky this year since many of them will interfere with holiday orders and strain shipping capacity. Package deliverers like UPS, FedEx, and the Postal Service are already experiencing a spike in demand from the pandemic, and those three shippers have said they plan to add surcharges during the holidays to offset additional costs and to keep volume manageable.
Additionally, Amazon only has so much capacity in its warehouses, and demand for warehouse space generally has spiked during the pandemic as e-commerce has boomed.
Normally, Amazon gives customers 30 days to return an item, but for items purchased from October to December, it's allowing customers to return them as late as Jan. 31, 2021. It's likely doing so to avoid congestion in its facilities during the holiday season and higher return shipping costs. But even if Amazon would rather you hold on to returns until after the holidays, customers are likely to send items back as soon as they decide they don't need them, creating inventory and logistics challenges for both Amazon and its marketplace sellers.
The best Prime Day ever
Whatever happens, Amazon will almost certainly tout its performance during the shopping holiday once the event is over, as the company has a habit of doing. But Amazon's internal data is a black box to outsiders, and such reports are typically devoid of real numbers that give an accurate picture of the results from such an event.
Investors should greet the report with skepticism. Holding Prime Day in October may have been better than no Prime Day at all, but for the reasons above, as well as the broader economic malaise around the world, the results are likely to be underwhelming.
