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Prime Day’s Membership Drive Means Long-Term Losses for Retailers

Friday, October 16th, 2020

Amazon held its annual shopping event, Prime Day, this week from October 13-14, offering over a million deals exclusive to its Prime members. The event brings in more sales than Black Friday and Cyber Monday combined for Amazon, but it also functions as a huge membership drive.

Past Prime Days usually bring in the most signups to the subscription service for any 2-day period. This year, eMarketer forecasts that the event will grow Amazon’s Prime membership by 14.9% to 142.5 million subscribers—the largest increase since 2017. More shoppers signing up for Prime compounded by Prime Day moving to October means brick-and-mortar retailers face growing challenges in capturing shoppers this holiday season and possibly future ones to come.

This year’s Amazon Prime Day offered deep discounts on categories like electronics, home goods, gym equipment and personal devices—big-ticket items that are usually purchased on Prime Day in the summer as well as the week of Black Friday. By moving Prime Day to October, Amazon was able to capture demand and dollars for both shopping events. In fact, 73% of Prime members said they will spend their Black Friday budgets on Prime Day.

Competitive retailers, like Walmart, Target, Best Buy, and Kohl’s, responded with rival sales to capture their fair share of early holiday spend. However, these efforts are quick defensive measures rather than long term solutions as Prime’s value proposition goes beyond Prime Day with shipping, shopping, reading, and streaming benefits that are of increasing value to members, keeping them in Amazon’s ecosystem on the platform longer.

Amazon Prime members spend close to $1,400 dollars per year on the site over $600 by non-members. The ~$800 difference in spend is significant as it is the amount that Amazon is taking from retailers and being spent on Amazon. These dollars are likely to never return to retailers outside of site as Amazon anticipates only a 2 percent churn when raising its prices. And with more consumers joining Prime each year, brick-and-mortar retailers will be challenged to make up for this loss in dollars well beyond the holiday season to cover their ongoing fixed costs.

To stay competitive, retailers will need to find new ways to create value comparable to Prime or sell goods that is exclusive to their stores. Price is not necessarily the best option as it will be a quick race to the bottom. 

Contributed By: Marie Burns, Insight & Strategy, Dallas

Image Source: Unsplash

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