Amazon.com Inc.’s June Prime Day event didn’t just drive sales, it also pushed product through a supply chain that has been twisted in knots by COVID-19.
Companies across the retail and consumer sector have faced supply chain challenges throughout the pandemic, as workers fall ill, factories shut down, containers and trucks to move product become harder to come by, and more.
might be an e-commerce giant, but it has also felt the squeeze of these global supply chain pressures. Prime Day helped alleviate some of that pressure, allowing the company to make room for fresh product in overstuffed warehouses, according to Justin Leigh, chief executive of Ideoclick, an e-commerce optimization platform that works with companies that sell on Amazon.
“We all needed Prime Day to pull some of that product through distribution chains,” he told MarketWatch. “Out-of-stocks dropped after, and in-stocks moved up. It cleared out the supply chain.”
Online shopping would’ve increased even without the pandemic, Leigh said. During the pandemic, online shopping soared, which also added to the strain.
“Amazon is working a lot closer to capacity than in the past. It’s working with a smaller margin of error,” Leigh said.
Amazon reported second-quarter sales on July 29 that have slowed since jumping in other recent quarters.
“As we think about the pull-forward in demand we’ve seen these past 18 months, it has required and will continue to require a significant amount of investment in our fulfillment network,” said Brian Olsavsky, Amazon’s chief financial officer, on the earnings call, according to FactSet.
Analysts continue to debate how well Prime Day 2021 did compared to other years. This year, as in previous years, the company didn’t provide a final sales tally. Sales for the quarter totaled $113.1 billion up from $88.9 billion a year ago.
Still, many analysts agree the continued investment in fulfillment is needed.
“While most of the focus will be on the shortfall of 3Q21 revenue guidance vs consensus, we submit that what is more important is the ongoing ramp in CapEx ($15.7b in 2Q21) as Amazon continues to purchase middle/last mile assets in preparation for the resumption of one day Prime Delivery expansion and what should be the rollout of same day,” wrote Credit Suisse analysts in a note.
Wedbush analysts said they expect the company to continue to focus on a multiyear investment plan to further expand its fulfillment footprint and scale AMZL, the delivery arm of its business. They noted that in the year through June 30, capital expenditures and equipment finance lease costs increased 74% from the year earlier, “reflecting a commitment to handle increased demand in the coming years.”
Despite having 950,000 U.S. employees, according to its second-quarter earnings release, the company continues to add workers along with facilities. On Thursday, Amazon announced a new fulfillment center coming to St. Lucie county Florida in 2022. The facility will span one million square feet and create 500 new jobs.
Amazon has 52,000 full-time associates in Florida, with fulfillment and sortation centers in Miami, Tampa, Orlando and Jacksonville.
With continued uncertainty from the pandemic, when Prime Day 2022 will take place is anyone’s guess. Last year, Prime Day was delayed until October because of the pandemic. In 2019, the event was held in June.
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“Amazon’s annual Prime Day occurred in late June adding ~400bps to net sales growth,” wrote Stifel analysts.
“Prime Day revenue passed the record set during last year’s sale which fell in 4Q. We note Prime Day has fallen in different quarters in each of the last three years skewing growth rates in various quarters.”
In 2020, the company faced a unique set of issues, according to Guru Hariharan, chief executive of CommerceIQ, which also works with companies that sell goods on Amazon.
“Last year, they didn’t want to add an event to the issue of getting items to people during the peak of the pandemic,” Hariharan said. “They chose to do it in October as a lead up to the holiday season.”
However, “October is not the ideal time,” Hariharan said.
But whenever it takes place, Amazon will bring a number of advantages to the event despite any hurdles put forward by the selling environment.
“Heading into 2Q earnings, we thought the Street needed a bit of hand-holding to help think through Amazon’s 2H growth drivers,” wrote MKM Partners in a post-earnings note. “On this expectation reset, we are more bullish on Amazon for 2H, as we expect its trifecta of growth engines, cloud, commerce, and advertising, to kick into high
Amazon stock is up 2.4% for the year to date while the benchmark S&P 500 index
has gained 18.2% for the period.