July 18, 2022
5 minute read
TL;DR: Prime Day…
- …grew a touch faster than the trajectory Amazon has been on lately.
- …grew slightly faster than inflation rates in like-for-like categories.
- …helped Amazon temporarily get back to market-level growth trends.
- …illustrated consumers are receptive to deal events in this inflationary environment.
- …in the Fall should kick off our holiday promotional plans.
Analyzing Prime Day through a Market Lens
You've likely seen Adobe's estimates for Prime Day growth this year of 8.5% Y/Y. In talking with brands and agencies following the event, most feel this estimate is reasonable, if not a touch conservative.1
Let's assume 9% is an appropriate figure.
- Is 9% growth a success story?
- Isn't inflation growing at 9% anyways?
- How does this compare to the broader market?
- What does it mean my outlook on Amazon for the balance of the year?
- Can last week's results inform our outlook for Amazon's second Prime Day event planned for October?
Is 9% growth a success for Amazon?
Amazon will be flirting with flat gross merchandise value (GMV) growth this June quarter, a continuation of the decelerating growth it has seen since March '21.
Expectations are for growth to return to double-digits in the September quarter, partially benefiting from Prime Day occurring in July (vs. June last year).
Categorizing Prime Day as good comes down to whether it accelerated growth (and hopefully generates a halo effect of elevated buying over the next month).
There's a bit of a wrinkle in the calculation of this given this year's event fell in July (3Q) and last year's in June (2Q).
To overcome this, I simply looked at the weighted growth of (2Q22 + 3Q22) vs. (2Q21 + 3Q21), which clocks in at 5.8%.
At 9% growth, Prime Day thus drove ~3.2% points of faster growth than the current trajectory would have implied. Thus, it’s reasonable to conclude it was a successful event for Amazon and many of the brands that participated.
Of course, we won't know the degree of halo effect for some time and there is risk of lower retention for new Prime member trials initiated during the event given the higher member price and consumer pressures.
How does 9% growth compare to inflation?
Headline inflation was reported at 9.1% Y/Y for June, the highest level since Nov. 1981.
- Food at home prices are up 12.1% (highest since April '79) and food away from home prices are up 7.7% (highest since Nov. 1981).
- This figure drops to 6.1% Y/Y once food, energy, shelter and the used car market is stripped out, still the highest level since Oct. 1981.
At these rates, you're seeing consumer brands report strong top-line figures. For instance, this week ConAgra reported revenue growth of 6.8%, with 13.2% growth in price/mix and volume down 6.4%. Many consumer brands, even those seeing weak demand at the moment, plan to increase prices further beginning in August.
Retailers have largely passed through price increases, and since Amazon generally matches its first-party prices against the market, it too sees a benefit to its top-line figures.
Prime Day growth of 9% therefore translates into a few points of growth faster than the inflation rate of like-for-like items (i.e., the 6.1% figure referenced above) - what an economist would call real growth as opposed to nominal growth.
Given record inflation, consumers are very attuned to these rising prices. With prices on Amazon reportedly down Y/Y for this Prime Day vs. last year's Prime Day (because so many items were OOS last year), Prime Day was a welcome reprieve for consumers, and bodes well for the coming Fall event.
How does 9% growth compare to the broader retail market?
Fortunate for this analysis, the Commerce Department published June retail sales figures on Friday, making for a useful comparison.
- Retail sales excluding motor vehicle and parts dealers (i.e., the most comparable read to Amazon sales) grew 10.1% Y/Y.2 June YTD figures indicate growth of 10.5%.3
- Non-store retail sales (i.e., online) grew an estimated 9.6% Y/Y in June and are up 9.3% YTD.
There are a couple of comparisons to make to Amazon:
- Prime Day growth of ~9% is relatively in-line with the Commerce Department’s estimates for digital commerce sales overall (although it only goes through June, while Prime Day was obviously in July).
- The broader market appears to be outperforming Amazon based on current forecasts for Amazon’s June quarter (+1% Y/Y).
- Physical store sales continue to outpace the digital market. This should start to reverse in the back half of the year.
Net-net, Amazon’s Prime Day helped it get back to market level growth performance, albeit for a short period of time.
Other interesting datapoints:
- Some brands reported they couldn’t get data out of Amazon's systems during Prime Day
- Amazon was self-funding significant discounts in certain categories that have too much inventory
- CPG/essentials did well during Prime Day, but the rate of growth was roughly in-line with the trend heading into the event
- The split between N. America (~60%) and International (40%) was consistent with Amazon's past geographical breakdown.
- This tool from Momentum Commerce is interesting if you want to see brand-level SOV and price change trends on PD.
- The consumer showed up on Prime Day, eager to find deals and offset some of the inflationary pressures. The results were positive, but not stunningly so. It wasn’t enough to say the consumer is as strong as ever, but it seems reasonable to assume the consumer will react just as positively during Amazon's Fall Prime Day event.
- Brands that pass price increases over the next two months will at least give themselves the option to discount in the Fall/Holiday.
- It will be important to monitor purchase trends on Amazon over the next month to help inform the weight you place on Prime Day 2 vs. Turkey 5 (i.e., how much is incremental vs. pull-forward).
- Amazon's growth rates are projected to re-accelerate in the September quarter. Amazon leads can point to this as reasons why the account needs to be a focus, particularly because physical store comps start to get more difficult (a post for another time!).
- There's a lot of negative sentiment baked in at the moment. Any signs of financial market recovery (i.e., individuals 401ks, easing in gas prices, easing in food inflation (unlikely), and/or lack of CV-19 variant outbreaks could be meaningful to consumer attitudes as they start holiday shopping.
- As an aside, while consultants/commentators/analysts (me included occasionally!) tend to latch on to an analytic provider’s estimate (often because one is the first to get major media to publish it), you should think of them as directional indicators, not fact. These are modeled estimates, and as one familiar with forecasting, there is often room for error or special caveats that get missed in the headlines.
- I have no idea why the media reports month-over-month figures. Doing so removes important context around seasonal trends and often causes misleading headlines.
- These growth rates are nominal figures. Thus, if you have inflation in the mid-to-high single digits, real growth is closer to low single digits.