Amazon’s Prime Day Was Good, But Not Good Enough

For years now, Amazon.com Inc.’s seminal Prime Day has turned historically slow July spending into a Black Friday-esque sales event. But this year sales fell short of forecasts, which says more about Amazon than the state of consumers. This year’s event, actually spread over July 11 and 12, set another sales record at $12.7 billion. That’s about 6% more than last year but less than the 9.5% gain forecast by the Adobe Digital Economic Index, which expected steep discounts would drive higher demand. So what gives?

One read is that elevated levels of inflation are curbing demand at the same time shoppers are hearing about economists assigning a 65% chance of a recession over the next year. However, about 40% of Amazon shoppers earn more than $100,000 a year, compared with the $73,500 median household income of a Walmart Inc. shopper, and are less likely to be as sensitive to inflation. But then again, inflation has cooled, slowing for 12 months, going from 9.1% to 3%.

Perhaps a better read is that this year’s results expose Amazon’s struggle to become not just a great delivery company but a great retailer. The struggle is more urgent than ever as Amazon’s cloud computing business suffers from a demand slowdown of its own. Although the company’s shares are up 60% this year, they are down 28% since peaking in July 2021 while the S&P 500 Index has gained almost 5%. Analysts have steadily lowered their 12-month price targets for the company’s stock, from an average of around $200 early last year to a current $144, according to data compiled by Bloomberg. The shares closed at $134.30 on Thursday.

The signs leading into Prime Day all pointed toward Amazon flexing its tech muscle to spur spending. It ramped up how it uses artificial intelligence to serve personalized deals to Prime members and rolled out invite-only discounts to create a feeling of scarcity and exclusivity. It even partnered with Booking Holdings Inc.’s Priceline to offer travel deals, including 20% off Priceline's Hotel Express in addition to its typical up to 60% hotel discounts. It also unveiled steep discounts on goods and delivery services across its Amazon Fresh stores.

But even with AI-enabled personalized marketing, Amazon couldn’t force consumers to spend more than they otherwise would have. An early read of spending by consumer insights firm Numerator found the top items bought were Temptations Cat Treats, Fire TV Sticks, and Liquid I.V. Packets. Shoppers were also buying Amazon’s brand-name toilet paper, organic protein powder, and Bissell’s Little Green carpet cleaner. This doesn’t quite prove Amazon’s success in getting shoppers to give in to their impulses and dig deeper into their pockets even with tech-enabled marketing.

Nevertheless, Amazon’s online presence is so great that competitors from Walmart to Macy’s Inc. see no other choice than to offer their own deals during the same week when Prime Day is held. And yet, even with the additional competition, Amazon captured the bulk of retail sales over the two-day event. Salesforce found online spending on sites other than Amazon fell by 7% over both days, which it attributed to lackluster discounts that hovered around 18%, smaller than last year. Average deals on Amazon were equally as drab, with discounts on electronics peaking at 14% off the listed price, toys at 12%, computers at 8%, and TVs at 5%, according to Adobe Analytics.

Amazon’s strength is its size. It runs the country’s biggest online delivery company, serving 167 million members. But with revenue growth slowing across its cloud business — Bloomberg Intelligence says deteriorating corporate IT spending and the lack of growth catalysts from generative AI could fail to ignite a rebound for at least two quarters — Amazon needs to sharpen its retail strategy. If this year’s Prime Day is any indication of what’s to come, Amazon has a lot of work to do.