Amazon tries to revive ecommerce business with additional Prime Day
Amazon is holding its second Prime Day shopping event in a year for the first time this week in a bid to boost its flagship ecommerce product and reverse declining sales.
The stakes for the $1.3tn group are high as it seeks to recruit new Prime members in saturated markets while cementing the scheme’s worth to existing subscribers globally — some of whom have seen the price of membership increase by more than 40 per cent this year.
Amazon’s Online Stores division, on which founder Jeff Bezos built his empire, has seen two quarters of declining sales in 2022 under new chief executive Andy Jassy. This is in stark contrast to the bumper pandemic period when demand reached record highs and sales increased about 40 per cent compared with before Covid-19.
The Prime Early Access Sale will take place over 48 hours beginning on Tuesday in the US, Canada and 13 European countries, including Turkey. It comes three months after the year’s first Prime Day, an annual discount event launched in 2015.
It gives Amazon a chance to make an early move to capture this year’s holiday spending, said Lesley Hensell, a consultant for Amazon merchants. “Amazon is thinking: ‘you know what, let’s get in early and get our share of those consumer dollars’. Before everyone else does their typical Black Friday, Cyber Monday — [Amazon] wants to get a piece of that pie now.”
Analysts at Jefferies have estimated the event could add an extra $4.1bn in sales to Amazon’s total fourth-quarter earnings, which it otherwise forecasts will be about $158bn, an increase of 14 per cent year on year.
“We are always looking for additional ways to help our members save throughout the year,” Amazon said. “And this event delivers just that — early holiday shopping with big savings.”
Over the past two years, operating costs soared as the company contended with Covid, the supply chain crunch and inflation. Amazon’s share price, down by a third this year, has been saved from falling further thanks to its still strongly performing cloud computing arm, AWS, and a rapidly growing advertising business.
But the poor retail performance has seen Amazon backtrack on its aggressive logistics expansion plans. It has closed, or cancelled opening, at least 50 facilities in the US, according to data from logistics analyst Marc Wulfraat. It has eased off the permanent hiring of corporate and frontline staff just months after warning that a shortage of willing and able warehouse workers was one of its biggest challenges.
Amazon is instead prioritising its top line for the rest of the year. In that pursuit, the second Prime Day event of 2022 could provide both a short- and long-term boost.
First, the cost of living crisis appears to have consumers looking hard for deals. A Jefferies poll of about 1,000 US Prime subscribers ahead of this week’s event said 82 per cent aimed to shop during the sale, with most planning to spend at least $50, compared with 59 per cent who were interested in July’s sale.
Second, having raised prices of membership in several markets, an additional Prime Day is being seen as an effort to further reinforce the plan’s value to existing members while coaxing in some new subscribers.
“There’s a broader theme here around how you stay relevant in a more competitive subscription landscape,” said Andrew Lipsman, of research group Insider Intelligence. “Exclusivity is key. Amazon understands the value of having those things that are really high value that customers can’t live without.”
On average, Americans have two subscription services, according to a survey by research group Kantar. It found a slight decrease in the number used between April and August.
Amazon is tight-lipped about the number of Prime members. The last update the company gave was in April 2021, when Bezos, then-chief executive, said it had more than 200mn subscribers. This is lower than the latest tallies for streaming services Disney and Netflix.
Amazon’s strength is in its breadth, say analysts. As well as free one- or two-day shipping, Amazon has steadily been adding other perks to Prime, such as discounted use of Grubhub, a US food delivery app, and building out its entertainment offerings, in particular Prime Video.
Another scheme, Buy With Prime, allows merchants who do not sell their products on Amazon to use the company’s warehouses and logistics to deliver their goods to Prime members in the same timeframe of one to two days.
Efforts to keep Prime subscribers happy have become increasingly expensive, however. The streaming service’s Lord of the Rings TV show is hailed as the most expensive series ever made. Debuting last month to mixed reviews, the series has cost Amazon a reported $1bn to acquire rights and put into production.
Amazon has also invested heavily in sport. To become the national broadcaster of the NFL’s Thursday Night Football, Amazon is spending an estimated $1bn per season, according to Enders Analysis. The company has also added the Champions League and English Premier League to its roster. In all, Enders estimated, Amazon is spending $1.6bn a year on sports rights.
Such is the extent of the investment that the cost of investment in digital content for Prime members, plus investment in AWS, would cancel out the $1.5bn saved in fulfilment network cost improvements in the current quarter, chief financial officer Brian Olsavsky said at the time of Amazon’s last earnings report. This could mean operating income will once again fall compared to last year.
But it is a long-term strategy. The first Thursday Night Football broadcast resulted in the “biggest three hours for US Prime sign-ups” in the scheme’s history, the company said, with an average of 13mn viewers.
In the US, annual membership growth is predicted to slow from this year to less than 3 per cent, according to Insider Intelligence estimates. By 2025, it is expected that about 70 per cent of all US households will subscribe to Prime, up from 67 per cent this year.
Further expansion means reaching different cohorts. Last week, Amazon launched a dedicated hub for heavily discounted products and relaunched “Prime Access”, its cut-price Prime membership for customers who qualify for government assistance, such as food stamps.