Retail

Amazon Prime Day Set to Damage Major Retailers

Douglas A. McIntyre

Published: July 9, 2018 6:40 am

Last Updated: January 11, 2020 9:20 pm

Amazon Prime Day is one week away. For 36 hours, during Prime Day, which spreads over July 16 and 17, e-commerce company Amazon.com Inc. (NASDAQ: AMZN) will offer countless deals to many of its Prime members, who number over 100 million worldwide. The event will grab hundreds of millions of dollars in sales, much of which could have gone to traditional retailers.

The size of the blitz is extraordinary. The products available to Prime members range from clothing to consumer electronics, household items, food and outdoor furniture. Amazon openly bragged about the breadth and depth of Prime Day. Jeff Wilke, Amazon CEO Worldwide Consumer, said:

Prime members will enjoy a day (and a half) of our best deals, with 36 hours to shop more than one million deals worldwide. New this year, members can shop exclusive Prime Day Launches from hundreds of brands worldwide, enjoy exclusive savings at Whole Foods Market and experience surprise entertainment events unboxed from giant Smile boxes in major cities. More than 100 million paid Prime members around the world will find our best Prime Day celebration yet.

The Prime Day offers stretch across merchandise sold by every large retailer. Department stores, which include J.C. Penney Co. Inc. (NASDAQ: JCP) and the Sears and Kmart divisions of Sears Holdings Corp. (NASDAQ: SHLD), cannot afford another onslaught from Amazon. Prime Day sales topped $1 billion last year, and the number is expected to rise substantially. By comparison, J.C. Penney’s total annual revenue is just above $12 billion.

Two other retailers most directed threatened by Prime Day are Kroger Co. (NYSE: KR) and Best Buy Co. Inc. (NYSE: BBY). Each is fundamentally a single-product category retailer, with Kroger among the largest food retailers and Best Buy the same with consumer electronics. Amazon has added its Whole Foods division to Prime Day offers. Consumer electronics are front and center among Prime Day product offerings.

And if Prime Day has one large target it is Walmart Inc. (NYSE: WMT), the world’s largest retailer, which also has a major grocery operation. Walmart has no event similar to Prime Day, and it lacks the tools to launch one. Amazon has found another way to get a leg up on what many believe is its major rival.

Prime Day also helps glue Prime members to Amazon and drives new Prime memberships. Prime members shop at Amazon two or three times more than nonmembers, according to research. Prime already adds millions of members a year. The low-priced deals on Prime Day will not be lost on many consumers who are not Prime members. Prime’s price of $119 is attractive for people who want deals on Amazon products, free shipping on many purchases and a widely used streaming media service. Amazon has cleverly done what Costco Wholesale Corp. (NASDAQ: COST) has. It gathers a subscription price before a shopper can shop Prime, making money upfront and a recurring stream of revenue.

As consumers prepare to go to stores and online to make mid-summer purchases, as July stretches into August, many will have already bought what they need on Prime Day, and retailers will experience more erosion to the traffic and revenue they desperately need.