It’s Prime time for Amazon and for better or worse, the rest of retail is jumping on the e-commerce giant’s bandwagon.
But at what cost and where’s the real opportunity in the mammoth sale?
One thing is for certain: It all works to the advantage of Amazon Inc. chief executive officer Jeff Bezos, whose wealth on Monday was pegged at $150 billion by the Bloomberg Billionaires Index, a mind-boggling sum of money equal to 0.8 percent of the U.S. gross domestic product. That makes him the richest person in modern history, in inflation-adjusted terms, and $54 billion wealthier than Bill Gates, currently in the number-two spot.
Amazon’s manufactured summer shopping holiday — the 36-hour Prime Day — kicked off midday Monday, offering more than a million deals worldwide, including up to 50 percent off Adidas, Champion, Lacoste and Puma styles and as much as 40 percent off jeans from Levi’s, Hudson, NYDJ and Lucky.
Expectations are high, but the sales bonanza started with a glitch as outages of Amazon’s web site were reported throughout the country, but most heavily in the major metropolitan areas in the Northeast, California and around Seattle.
All the extra attention only pushed shares of Amazon 0.5 percent higher, to $1,822.49, but many other retailers fared better. Among the biggest gainers were VF Corp., up 4.7 percent to $88.80; Guess Inc. 3.2 percent to $22.14; Kohl’s Corp., 2.2 percent to $70.65; Macy’s Inc., 1.7 percent to $36.99, and J.C. Penney Co. Inc., 1.3 percent to $2.41.
It’s the fourth outing for Prime Day and retail competitors of all sorts are getting swept up in its wake. Target offered up to 40 percent off sunny styles for the family, Kohl’s took an extra $10 off purchases of $50 or more, Macy’s sprung a surprise online sale and so on.
Amazon has without a doubt focused the customer’s mind on shopping for the period, but it’s playing a different game — it’s trying to build its Prime membership program at $119 annually
There are over 100 million paying Prime members and Amazon pitches the service, which offers free two-day shipping, perks in online video games and streaming movies, as a kind of elixir for the modern age.
“Prime was designed to make your life better every single day,” Amazon said.
Perhaps so, but the rest of retail is trying to keep up.
“While Amazon seems willing enough to sacrifice upfront margin for the sake of building its membership coffers over the longer term, we see this strategy as a credit negative for many brick and mortar retailers,” said Charlie O’Shea, lead retail analyst at Moody’s Investors Service, in an analysis. “Amazon’s patient shareholder base — which has been largely profit agnostic — allows the online giant to grab market share at prices that will continue to compress margins for retailers with less forgiving shareholders.
“We see the industry caught in the throes of ‘Retail Darwinism,’ which is a credit negative for mostly all but the largest, higher credit quality retailers,” O’Shea said. “Fighting the margin battle is a no-win situation for most mid- to smaller-tier retailers. Match or undercut deep discount deals and see your margins erode — or do nothing and lose the sale, and potentially the customer.”
But Prime Day is, in many ways, also just another sale in a calendar already chock full of them.
Economist Frank Badillo, director of the MacroSavvy Resource Network, said: “I doubt that Prime Day can make retail any more promotional than it already has managed to become. But it does continue to move sales around — as well as change the nature of the promotions driving sales. The sales are moving toward Amazon and away from everybody else — as well as away from other times of the year.”
Badillo said the big thing that has changed about sales is that they are both data-driven and being pushed digitally.
And taking advantage of changes in the market might be the name of the game.
Penney’s, to be more competitive against Amazon Prime Day, changed its promotional strategy this year. It’s holding a three-day “Cyber in July” sale through Wednesday, including offering free shipping for purchases more than $49 and free ship-to-store. Some of the deals are buy one, get two free on select women’s sandals; a $7.99 Liz Claiborne charging wallet, and $9.99 St. John’s Bay men’s cargo shorts.
“We had a similar sale last year, but it was for all week long,” said a Penney’s spokeswoman. “This year, we split our online sales events around Amazon Prime Day into two separate sales — last week we had our two-day Biggest Sale and this week our three-day ‘Cyber in July’ sale.”
Roshan Varma, a director at AlixPartners’ retail practice, said other retailers can get more than just another price-driven rush out of Prime Day.
“If they planned Prime Day [promotions] in advance then they might have that extra gunpowder to play with,” said Varma, noting that if retailers didn’t plan ahead, they will probably just be shifting sales from earlier or later.
An AlixPartners survey found that 63 percent of people plan to shop during Prime Day, with 39 percent of people planning to shop at other retailers.
“Their goal isn’t to offer promotions and sales, their goal is to engage with consumers,” Varma said. “Customers are planning on doing research today.”
That makes Amazon’s big day a big opportunity for other companies to put their best foot forward and impress shoppers, building or reestablishing relationships for later.