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Insight Report

Amazon (AMZN) Prime Day 2016 Preview

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Coresight Research

Key Points

  • Leveraging the success of last year’s Prime Day, a celebration of the company’s 20th year in business, Amazon is celebrating its birthday again this year, promising to offer even bigger and better deals to its Prime members than last year, which saw higher unit sales than on the previous Black Friday.
  • Fung Global Retail & Technology conservatively estimates that Amazon could generate $525 million of sales on this year’s Prime Day, up 26% from our $415 million estimate last year, as Amazon leverages the success of last year’s event plus a 33% increase in the number of Prime members, which number nearly 70 million.
  • Amazon is offering several pre-event deals, as well as daily deals, in order to grow excitement leading up to the event. Owners of Alexa artificial intelligence devices were initially offered a riddle when inquiring about Prime Day, and they will receive exclusive deals leading up to and including the event.
  • Prime Day is a manmade shopping holiday that echoes Alibaba’s Single’s Day (held every Nov. 11), which has generated explosive growth for Alibaba. Last year’s Single’s Day saw a 54% increase in GMV to US $14.3 billion amid increasing international participation.

Coresight has been covering Amazon Prime Day since it was launched in 2015 and additional reports from can be accessed here.

EXECUTIVE SUMMARY

Amazon Prime Day was an experimental event last year that celebrated the company’s 20th birthday and offered discounts to existing and prospective members of its Prime membership service. It was apparently so successful that Amazon is repeating it this year. Last year, the event even rivaled the frenetic Black Friday and Cyber Monday shopping days, with Amazon shipping 34.4 million items sold worldwide on Prime Day. More importantly, the event attracted new, big-spending Prime members, whose numbers swelled by about 3 million during the quarter—and memberships tend to lock in customers, discouraging them from signing up for memberships elsewhere.

This year’s event promises to be even bigger and better than last year’s, with Amazon offering more, and more unique, deals along with deals during the countdown to Prime Day to spur members’ excitement. The month of July sees many retailers offering Black Friday sales to rouse consumers from the lull of summer’s heat. Coincidentally, a number of these will be running during Prime Day.

Source: Amazon

This year’s Prime Day starts at midnight Pacific Time on July 12, and more than 100,000 deals will be available to Prime members in the US, the UK, Spain, Japan, Italy, Germany, France, Canada, Belgium and Austria. US members can start shopping at midnight Pacific Time. Like last year, nonmembers can sign up for a free 30-day trial Prime membership in order to take advantage of the sales.

On Prime Day, Amazon plans to offer:

  • Deals everywhere: Deals will be offered on all devices in all Prime countries.
  • TVs, TVs and TVs: Amazon plans to offer deals on twice as many TVs as it did on Black Friday and Cyber Monday combined.
  • Deal tracking by app: Members can track, browse and shop deals on the Amazon Shopping app.
  • Deal sorting: Members will be able to sort deals by category.
  • Exclusives from Alexa: Amazon is promising special deals for owners of the Amazon Echo, Dot and Tap artificial intelligence–enabled appliances on Prime Day, to be revealed later. When previously asked about Prime Day deals, Alexa responded with a cryptic poem, however Amazon Echo, Dot, or Tap will receive $10 off on orders placed through Alexa, as well as exclusive deals via Alexa on Prime Day.
  • More small sellers: For this year’s Prime Day, Amazon has signed up twice the number of small sellers as last year.
  • Media deals: Amazon is also planning to offer rental and purchase deals on popular TV series and films for streaming.
  • Music experiences: Starting June 30 and running through Prime Day, Amazon is offering Prime members the chance to win a trip to see several artists; the trip includes travel, accommodation and a meet-and-greet.
  • Photo sweepstakes: Members who upload a photo between June 30 and July 12 will have a chance to win a $5,000 Amazon gift card.
  • Discounted Kindle Unlimited: On July 5 and 12, members can save 40% on a Kindle Unlimited reading membership.
Countdown to Prime Day

In order to build excitement for Prime Day, Amazon is offering general and daily deals to increase customer excitement. Starting July 5, Amazon has offered a bundle of a 32” LCD TV with an Amazon Fire Stick for $119.99 (the fire stick alone retails for $39.99), and Amazon has offered the following daily deals thus far:

Friday, July 8

  • 47 digital movie rentals for $0.99
  • A Lumee iPhone case with a built-in selfie flash
  • 30% off the Polaroid Cube HD action cam
  • Anker’s PowerCore external battery for $26.99 (can recharge an iPhone 6 a total of 11 times on a charge) …
  • … and a secret deal to save $50 on an Amazon Tap (regular price: $129.99) when purchased through an Alexa device

Saturday, July 9

  • Rental of Zoolander 2: The Magnum Edition for $0.99
  • Rental of The Notebook for $0.99
  • Discounts on Kamado Joe Grill and JoeTisserie
  • Up to 60% discounts on select Spring and Summer apparel
  • Up to 25% off outdoor picnic and BBQ essentials
  • 25% off the DJI Phantom 3 Advanced Quadcopter drone
RECAP OF LAST YEAR’S PRIME DAY

Last year, to honor its 20th birthday, Amazon announced that its first Prime Day would be held on July 15 (Amazon was founded on July 5, 1994). The company boldly promised that it would offer more deals for Prime members than it had offered on Black Friday, with the sales starting at midnight in time zones in the US, several European countries and Japan. So that everyone could enjoy the celebration, Amazon offered free 30-day-trial Prime memberships (which is an ongoing offer).

Amazon characterized its first Prime Day as being more successful than Black Friday. The company released a number of Prime Day metrics:

  • Worldwide, 34.4 million items were shipped.
  • Unit sales were higher on Prime Day than on Black Friday 2014, the company’s biggest Black Friday to date.
  • Worldwide order growth was up 266% year over year and was 18% higher than on Black Friday 2014.
  • More new members tried Prime worldwide on Prime Day than on any other single day.
  • Fulfillment by Amazon service saw 30% growth in unit sales.
  • Customers ordered hundreds of thousands of Amazon devices.

Source: Amazon

Following the success of the first Prime Day trial, Amazon commented that it would hold another Prime Day sometime in the future.

PRIME DAY SALES ESTIMATE: $525 MILLION THIS YEAR

Based on our analysis, Fung Global Retail & Technology estimates that Amazon will generate $525 million of sales on Prime Day 2016, up 26% from $415 million last year. This figure is comprised of an incremental $145 million of sales in addition to its $272 million of average daily sales (excluding Amazon Web Services).

Based on success of last year’s Prime Day, a 33% increase in the number of Prime members versus last year, and increased visibility and marketing this year, we conservatively estimate that Amazon could so $525 million in sales on this year’s Prime Day.

IS PRIME DAY COMPETITION FOR ALIBABA’S SINGLE’S DAY? NOT YET.

Amazon’s Prime Day is likely a step in the same direction of its Chinese peer, Alibaba, which has had phenomenal success with its Single’s Day global shopping festival. Single’s Day began as a way for singles on Chinese university campuses to commiserate their singlehood (with ones in the date 11/11 representing singles), and this trend was picked up by Alibaba to become a global shopping event. The graph below shows the exponential growth in goods traded on Single’s Day, achieving 54% growth in 2015 alone.

Source: Company/Finance.Sina.com/iResearch/ECInsight

While Single’s Day was initially a Chinese event, it has increasingly become a global phenomenon. In 2015, 16,000 international brands were traded, and one third of the buyers bought from international brands or merchants. For instance, US retailers Macy’s, Walmart, Costco, Nordstrom and Neiman Marcus participated in Single’s Day. The company underscores its international presence by inviting international celebrities to attend the launch of the event in the command center, which had been relocated to Beijing. The event was truly international, with orders arriving from countries as disparate as Russia and Brazil, whereas Amazon’s Prime Day is limited to the US, UK, Spain, Japan, Italy, Germany, France, Canada, Belgium and Austria.

Although Amazon’s 2015 Prime Day sales exceeded its prior Black Friday sales, the event still has some ways to go to exceed US Black Friday’s e‑commerce sales of $2.7 billion in 2015 (source:  Adobe.)

PRIME DAY HELPING TO DRIVE PRIME SUBSCRIPTIONS

We believe that the dramatic growth in the number of Prime memberships was a driving factor behind Amazon turning profitable in the second quarter of 2015. Once members pay the $99 annual fee, they feel obligated to concentrate their purchasing through Amazon in order to get their money’s worth—although Amazon may not offer the lowest price on any given item, even including the free two-day shipping offered for certain items. (Clearly, Prime members receive additional value from the free video streaming, music, photo storage and other services that come with membership.) Interestingly, products available under Amazon’s emerging private-label apparel business (which, at time of writing, primarily include womens’ wear under the Lark & Ro label) are seemingly all available with free two-day shipping for Prime members.

Source: Amazon

Once members sign up for Amazon Prime, they are likely to renew. According to a recent study by Consumer Intelligence Research Partners (CIRP), 73% of trial subscribers purchase memberships, and 91% of first-year subscribers and 96% of second-year subscribers renew.

Furthermore, Prime members are big spenders. They spend $1,100 annually, on average, compared to about $600 for non-Prime members, according to CIRP.

Source: Amazon

Amazon has only publicly stated that it has “tens of millions” of Prime members. The graph below shows the dramatic growth in the estimated number of members worldwide, culminating in CIRP’s most recent estimate of 54 million at the beginning of this year. This figure represents about one-fifth of the US population. In June, analysts at Sanford C. Bernstein estimated that Amazon had nearly 69 million Prime members.

Source: CIRP
Changes to Prime Membership Types and Fees

Annual Prime memberships were initially priced at $79, but Amazon raised the annual fee to $99 in March 2014. In April 2016, the company changed the pricing structure to add the option of monthly and video-only memberships, likely reflecting the maturity of the program and offering competition to Netflix in the video arena. In addition to the $99 annual memberships, Amazon now offers $10.99 monthly bundles with all the Prime services, including video, in addition to an $8.99 stand-alone monthly video service.

In September 2015, Amazon offered a one-year Prime membership at a discounted price of $67 to celebrate the five Emmy Awards the company won during the 67th annual Emmy Awards.

 RESPONSES FROM OTHER RETAILERS

Many large retailers run sales in July, and the timing of several summer sales last year coincided with Prime Day:

  • Best Buy ran its own Black Friday sale in late July and a Cyber Monday sale on July 27.
  • Target also held a “Black Friday in July” sale, offering buy one, get one free deals and 50% off certain items on the Sunday and Monday preceding Prime Day.
  • Walmart launched what it calls “rollbacks” (i.e., discounts) on 2,000 items starting the same day as Prime Day and running for 90 days.

Walmart is currently offering a free 30-day trial for its Shipping Pass, which, like Amazon Prime, includes a year of free shipping and unlimited two-day shipping, for $49, compared to Amazon’s $99 annual fee. Walmart’s program does not offer streaming video or other services, and Walmart offers about 7 million products compared to Amazon Prime’s 20 million. As it did last year, Walmart plans to offer rollbacks on prices for 90 days starting July 1.

CONCLUSION

Amazon’s Prime Day experiment turned out to be a rousing success for the company. It resulted in record order volume and a steady increase in the number of Prime members, who are estimated to spend nearly twice as much as non-Prime customers. Moreover, paying a membership fee tends to lock in customers, because they want to be sure to get their money’s worth from the free shipping and other services that Amazon’s program offers. This year’s Prime Day looks like it will be even bigger and better, and other retailers are offering typical July sales of their own to shake off the dog days of summer.

 

 

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