/Amazon’s Prime Day is shaping up to be its most challenging one yet

Amazon’s Prime Day is shaping up to be its most challenging one yet

Men work at a distribution station in the 855,000-square-foot Amazon fulfillment center in Staten Island, New York.
Johannes Eisele | AFP | Getty Images

In the six years since Amazon held its first Prime Day, the marquee shopping event has always been held in mid-July as an attempt to drum up sales during the sluggish summer season.

But on Tuesday, when the two-day event kicks off, Amazon will see whether it can successfully push consumers to search out deals more than a month before the holiday shopping season traditionally begins.

The company pushed back its annual discount shopping event from mid-July to Oct. 13-14 after the coronavirus pandemic generated unprecedented strain on its fulfillment and logistics operations. Facing a deluge of online orders, Amazon quickly began to run out of stock of items on its site and couldn’t meet its vaunted Prime two-day delivery window.

Over the ensuing months, Amazon worked to return conditions in its warehouses to normal by prioritizing shipments of essential goods. It brought on 175,000 new warehouse and delivery workers to help shoulder the load. Amazon kept more than 70% of the employees it added, signaling that online orders continue to flood in long after the panic buying tapered off.

The company has been busy expanding its warehouse footprint, with the goal of growing its global network square footage by 50% in 2020, up from a 15% increase in 2019. Amazon said it’s on track to open 33 new fulfillment centers in the U.S. this year. It has also added a slew of new delivery stations, which allow Amazon to get closer to customers and speed up deliveries.

Amazon opened 158 last-mile delivery stations between March and October, more than any other type of facility, according to MWPVL International, a supply chain and logistics consulting firm. The last-mile facilities are likely to give Amazon a leg up against retail rivals during the holiday shopping season, especially when shoppers are looking for Christmas gifts at the eleventh hour. 

Amazon will need the extra space in order to weather the back-to-back rush of Prime Day and the holiday shopping season, as well as to prevent the delays and out-of-stock notices that rankled the company back in March. 

With Prime Day taking place in October, Amazon’s “peak season” will last longer than ever before. Peak season typically refers to the week before Black Friday through Christmas, during which warehouses are fully staffed and employees are required to work overtime. 

For many warehouse employees, working during peak season is somewhat of a badge of bravery, due to the long hours and seemingly endless stream of packages flowing out of warehouses. Some workers have even created commemorative T-shirts to mark the period, with slogans such as “You can see your family in January” and “Instapot season,” likely in reference to the fact that the Instant Pot pressure cooker is often a top-selling item on Prime Day and during the holidays. 

Prime Day, which started in 2015, has grown to become one of the company’s most important retail and marketing events. It secures new Prime subscribers, allows Amazon to further promote its products and services and provides a sales boost, normally in the middle of the year. 

This year’s Prime Day is expected to be just as lucrative for the company. Amazon doesn’t share Prime Day sales volume, but JPMorgan forecast this year’s event could bring in revenue of $ 7.5 billion, up 42% from its 2019 estimates. eMarketer estimated Prime Day sales could hit close to $ 10 billion.

For shoppers, Prime Day may overshadow this year’s Black Friday and Cyber Monday, with 67% of U.S. shoppers planning to make a purchase during the event this year, according to a RetailMeNot survey of over 1,000 consumers.

Amazon’s decision to hold Prime Day so close to the holidays, or even at all this year given the coronavirus-related constraints, is a testament to its importance to the company, said Bernie Thompson, a 10-year seller on Amazon and founder of electronics company Plugable Technologies.

“Amazon wouldn’t want to simply forgo it for a year,” Thompson said. “It’s too important to Amazon’s growth cycle and how they win consumers.”

Bracing for chaos

With Prime Day set to kick off soon, it’s not just warehouse workers who are bracing for an onslaught of online orders. 

The millions of third-party sellers that make up Amazon’s marketplace will also be running discounts on their products, which run the gamut from used electronics and custom T-shirts to pet supplies. The group is of growing importance to Amazon, accounting for 58% of the company’s total merchandise sold.

Despite their key role in Prime Day, multiple sellers told CNBC that they felt they were unprepared for this year’s discount event. Usually Amazon sends plenty of alerts to third-party sellers leading up to Prime Day, reminding them of cutoff dates for marketing, discount submissions and new shipments. But this year, third-party sellers learned when Prime Day would be held at the same time as the public.  

“How can you consider your sellers partners with you if you don’t give them time to prepare?” said Jason Boyce, a former Amazon seller who is now a consultant to third-party merchants. “It’s disappointing.”

With little time to prepare, some merchants are only running a few Prime Day discounts and plan to offer deals throughout the holiday shopping season. Boyce and Thompson said sellers are also approaching Prime Day cautiously due to recently announced inventory limits in Amazon’s warehouses.

In July, to conserve space, Amazon said it would start limiting the amount of goods third-party sellers can send into its warehouses. All product categories are affected by the change, with quantities differing on a product-by-product basis. 

Amazon has been working closely with third-party sellers ahead of Prime Day and is making sure it has enough space for sellers to store their products in its warehouses, said Jamil Ghani, Amazon’s vice president of Prime, in an interview with CNBC in September. “We’ve been making changes to our logistics and supply chain to adapt to an ever-evolving situation,” Ghani added.

The quantity limits only impact third-party sellers who use Fulfillment by Amazon, or FBA, which is the company’s program that lets sellers ship their products to an Amazon warehouse and then Amazon ships the product to customers for a cut of each sale. Sellers also store goods in their own warehouses and manage fulfillment, but the majority of Amazon’s top third-party merchants in the U.S. use FBA for their orders.

Even with the new limits, most products will have enough space available for over three months of sales, which is more than many sellers require, given that most sellers carry about 1.5 months of inventory in Amazon’s facilities, the company said. If sellers run out of stock, they can send in new inventory any time, Amazon added.

Amazon said it has also reduced its own retail product ordering to accommodate more products from third-party sellers in FBA warehouses. 

Still, Thompson said the limits mean third-party sellers will have to have their inventory “perfectly timed” to avoid running of stock, particularly on “top-tier” Prime Day promotions, like Deal of the Day. Deal of the Day promotions, which are featured prominently on Amazon’s site during Prime Day, can move up to a month’s worth of inventory in one day, Thompson said.

“So there’s a month of goods that are sold all at once in one day, which is great, but you know, you’re kind of down to about a month of other inventory that is available to sell all the other days,” Thompson said.

“It can be done, but we’ve never before had these kinds of inventory limits.”

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