Want to know how to spend your next $1?
Don’t waste another dime on bloated channel reporting and vanity metrics.
×
The Current, delivered daily.
Ecommerce news, right to your inbox.
Sign up for our email newsletter.
Subscribe.sticky-cta-wrapper {
width: 100%;
position: fixed;
bottom: 0;
left: 0;
background-color: var(--black);
}
Sign up for Tradeswell Newsletter
Retail Channels
20 July 2022
Prime Day 2022: Inflation's impact, and a look at the halo effect
Data shows price-conscious consumers sought essentials, while non-Amazon US retailers got a lift.
(Illustration by The Current)
If done with planning and foresight, Amazon Prime Day can have an impact beyond the day itself.
This applies to brands who sell as part of Amazon’s massive deals event. But it also applies to those of us eager to glean insights on what the two biggest online selling days of the year mean for ecommerce as a whole.
Given its far-reaching impact, Prime Day results in a font of data that can be helpful on a number of levels. For one, Amazon is said to be planning another Prime Day in the fall, so there’s a chance to apply lessons right away. The data also provides insight about what’s working in ecommerce, and the state of the economy as a whole.
So, while we already reviewed some of the headline data released right as the event came to close, it's worth taking a closer look across categories, and sources to see what else is worth learning. Here are a few of the key data points that have emerged since the event:
Sales trending up
The early numbers showed Prime Day’s sales marked growth from a year ago. Amazon itself shared that the 300 million products purchased on July 12-13 were up from the roughly 250 million items it reported were bought in 2021. The company hasn’t released dollar figures. But when it comes to overall sales across all retailers, online spending on July 12 and 13 totaled $11.9 billion, according to the Adobe Digital Economy Index. That represents 8.5% growth over 2021.
Drilling down into consumer spend on Amazon, market research data firm Numerator’s Prime Day Tracker shows more growth.
Based on its initial read of data from the two days, the average order size for Prime Day was $52.26, up from $44.75 in 2021. Numerator added that 62% of households placed two or more separate items. The average household order size was $144.56.
Four out of the top five best-selling items on the day were Amazon-branded, from Fire TV sticks to Echo Dots. The lone non-Amazon item in the top five was home security cameras and doorbells from Blink. Meanwhile, variety packs from Frito Lay finished in sixth position.
Top categories included household essentials (29%), health and beauty (28%), and consumer electronics (27%), according to Numerator. Meanwhile, 87% of purchases made were either for a household or everyday goods, while larger ticket items shoppers would only purchase on sale accounted for 20% of spend, Numerator reports.
While electronics are typically big sellers at the event, the popularity of household essentials could suggest that shoppers are stocking up on the key items at a time when they are watching their wallets or have fewer discretionary funds available amid signs of economic tightening.
Indeed, 65% of shoppers spent the same or less this year. Further, inflation impacted 83% of Prime Day shoppers, Numerator reported.
How did other retailers fare?
Another cohort that is closely tracked on Prime Day can best be described as, “retailers not named Amazon.” While these big names in shopping don't sell on Amazon, they often run their own sales and promotions on Prime Day, and get a midsummer lift because of it. This has been termed the “halo effect” of Prime Day.
In the US, this year’s Prime Day brought growth for US brands and retailers selling on their own sites and platforms, according to data from Salesforce. When compared with the second Tuesday and Wednesday of July in 2021, the two days of Prime Day showed 8% growth for American online sales, the B2B software company’s shopping index found.
In one interesting twist, Walmart still benefitted from Prime Day, even though it didn’t run a specific promotion advertising deals around Prime Day. According to results of a survey of 1,000 consumers from supply chain software firm Blue Yonder, 49% of consumers said they took advantage of deals at Walmart on Prime Day. In 2021, the number that gave the same answer was 35%. Among retailers that did hold deal events, 40% shopped at Target in 2022 through its "deal days" event, versus 26% in 2021. Best Buy’s Black Friday in July event, meanwhile, attracted 26% of respondents in 2022, versus 15% in 2021.
Globally, sales on non-Amazon sites were down 12% in 2022 compared to Prime Day 2021, Salesforce reports, noting that this number was soft itself when compared with 2019 and 2020.
In a post analyzing the results, Salesforce Director of Consumer Strategy and Insights Caila Schwartz wrote that this was the result of oversaturation of product as demand for goods rose in key categories, as opposed to shopper behavior.
“High-ticket products like electronics and sporting goods saw meteoric holiday sales growth in 2020 and the first half of 2021 — resulting in a market with too much product and not enough customers,” Schwartz wrote.
Prime Day provided a boost on the heels of a quarter that showed slowing ecommerce sales growth. In the second quarter, US ecommerce sales were up 2% year-over-year, while global sales for the same period declined 6% year-over-year, Salesforce reported. During a period of elevated inflation, however, prices are going up. The average selling price for the second quarter rose 9% in the US, and 4% globally.
As back-to-school shopping kicks into gear and brands and retailers start to get ready for the holidays, it's a fair bet that a big focus will remain on prices. Especially as many retailers continue to attempt to clear out inventory that is mismatched to demand as a result of supply chain challenges, the discounting behavior that appeared on Prime Day appears poised to continue all year long.
Want to know how to spend your next $1?
Learn More
Trending in Retail Channels
Don’t waste another dime on bloated channel reporting and vanity metrics.
Unlock Incremental Growth
Shopper Experience
19h
Can Amazon grow and cut at the same time?
The company is pulling back after breakneck pandemic expansion. Will it sacrifice the shopping experience along the way?
Amazon is in a period of rebalancing.
The company has long scaled at a relentless pace as it sought to not only provide a marketplace for commerce, but the infrastructure that enabled it, as well. Amazon found another level of overdrive over the last two years, as demand spiked to unseen heights during the pandemic and the company tried to build to keep up.
This wasn’t necessarily a period that saw the kind of invention that Jeff Bezos made an existential tenet of the company, but it nonetheless seems to be shaking out as a cycle that included risk and fallout.
In this case, the risk was not a new device like a smartphone or a move to bend the future to Amazon's will like drone delivery. Rather, it was an expansion that took its already-vast operations to new heights.
Nowhere was this more evident than the company’s logistics network. As CEO Andy Jassy described it to analysts Thursday on an earnings call, the company doubled the size of a fulfillment network it took a quarter-century to build in two years. It also built out a last-mile delivery network that was the size of UPS, which is one of the top two carriers in the U.S.
In 2022, all of that expansion ran into 40-year-high inflation, war in Ukraine and a pullback in demand for goods amid reopening. The company first admitted the problem: It had overbuilt.
But the solution is not to tear down. It had to keep expanding as only Amazon does, while still cutting back in a period of “belt-tightening,” as executives have put it.
That’s evident in watching developments out of the logistics network alone. Amazon pulled out of some areas, and canceled plans to expand into some new warehouses. Yet, as Business Insider reported, it still added 79 million square feet – a footprint that is equal to half of next-closest competitor Walmart’s entire distribution network. It is also expanding Buy with Prime, a new program that will allow direct-to-consumer brands to offer Prime benefits, and, by extension, access to Amazon’s logistics network. Another service, called Amazon Warehousing and Delivery, is designed for upstream storage, necessitating more space to be made available in the network.
At the same time, it will seek to keep doing more for consumers.
Jassy indicated as much when he was prompted to outline his priority areas. Beyond cost-cutting, he said speed is the second highest priority for Amazon. As if to conform this, he said later in the call that one-day shipping is getting off the ground in North America.
Selection is another priority area. At Amazon, that phrase translates to a few things, but top of mind is “expanding the third-party seller marketplace.” Third-party sellers accounted for 59% of sales in Q4. Beyond sales, Amazon’s work with the sellers who post their products on the marketplace is also lucrative for the company. Amazon allows these sellers to tap its logistics network to offer Prime through the Fulfillment by Amazon program. Its business segment called third-party seller services grew 20% year-over-year in the fourth quarter, right in line with the massively profitable cloud computing division Amazon Web Services.
Price, Jassy said, is another area of importance, especially with the consumer pullback on discretionary purchases being observed amid inflation.
“I think pricing being sharp is always important,” Jassy said. “But particularly in this type of uncertain economy, where customers are very conscious about how much they're spending, having the millions of deals that we put together with our selling partners in the fourth quarter was an important part of the demand that you saw.”
Finally, Jassy cited a priority of improving the customer experience. He said Buy with Prime would give subscribers the ability to use their benefits across the web, and noted that virtual try-on for shoes brings change to the shopping experience.
But it’s in this area that the tradeoffs that may be happening under the surface may rear their head again. GlobalData Managing Director Neil Saunders noted that online shopping generally is becoming “more difficult" on Amazon.
“While the Amazon marketplace is far from a terrible place to shop, it has become more complex and cluttered with a multitude of products, delivery options, and prices levels for shoppers to sift through,” Saunders wrote in note released at the time of the earnings call. “The result is that impulse buying has dropped and that more people are migrating away to other retailers. This is not yet a serious problem as erosion has only happened at the margins, but it is something Amazon will need to address and arrest to prevent further decline.”
Taking a rhetorical step further, the journalist John Hermann wrote this week that a “junkification” of Amazon is taking place, while arguing that “everything is going according to plan" for the company.
He placed the growth of the third-party seller marketplace at the center of this trend. But it also comes as Amazon grows its advertising business, with many taking note of a growing number of ads on the platform. The company also wants to keep growing Prime, and is now using content such as Lord of the Rings and NFL’s Thursday Night Football as key acquisition channels. Both had “record” signups of new Prime members, CFO Brian Olsavsky said.
“We see a direct link between that type of engagement and higher purchases of everyday products on our Amazon website,” he said.
It will have to do each of these things at once, while entering a period that will require it to be “more targeted with its growth ambitions,” as Saunders put it.
"Since its inception, Amazon has had a culture of throwing dollars at many different things to see where they led and what they could learn," Saunders said. "That approach worked well for a younger, fast-growth business. It works far less successfully for a more mature entity. In our view, management deserves credit for recognizing this and quickly responding. However, the shift requires a lot of care because Amazon needs to find a new balance between being ambitious and innovative and being more frugal with its spending – which will be very challenging."
Jassy said the changes of the pandemic made its logistics a "different network." That may be true of the whole company. Rather than an isolated cycle of overbuilding and pulling back, this may prove to be a period that changes Amazon altogether. The bets will still be there, but the risk will be magnified with fewer dollars that don't pay off to go around. As hinted by the logistics buildout of the pandemic and even Buy with Prime, they also may look more operational.
Less delivery robot, more delivery optimization.
As Jassy put it: “We're going to be very thoughtful about how we streamline our costs, and I think you see a lot of that, but we're also going to continue to invest for the long term.”
The recipients of those investments will say a lot about where it wants to head in this next year.
Keep reading...
Show less
Loading...
Subscribe to The Current Newsletter
SubscribeLatest from Retail Channels
.sticky-cta-wrapper {
width: 100%;
position: fixed;
bottom: 0;
left: 0;
background-color: var(--black);
}
Sign up for Tradeswell Newsletter