Prime Day 2020 Set to Break Records, But 3P Sellers Facing Challenges

Prime Day 2020 illustration feature

With Prime Day hitting next week, the unofficial kickoff of a very different holiday season, sellers are geared up to take advantage of the massive shopping event, but the proximity to other mega events from Thanksgiving on may lead shoppers and sellers to choose one or the other vs. both.

Also, experts wondered about the potential for stock outs due to Amazon’s inventory limitations on third-party sellers, and for fulfillment challenges even after Amazon hired hundreds of thousands of workers and added millions of square feet of facility space. Goods from 3P sellers make up more than half of the revenue on Amazon’s marketplace.

“If I’m an Amazon shopper on Prime Day, I’m buying stuff in the first four hours,” said Jason Boyce, founder and CEO of Avenue7 Media who advises Amazon 3P sellers, referring to inventory issues. “A lot of very popular products will run out of stock on day one, especially if there are lightning deals and deep discounts, and sellers won’t be able to restock.”

Record Sales Forecast

eMarketer has projected Prime Day will generate $10 billion in sales, up from $7 billion in 2019, as consumers flock to the shop-a-rama, many flush with stockpiled cash and wanting to get in early on holiday deals.

Retail consultant Jennifer Kaylo Ruscin said her clients have prepped for Prime Day in multiple ways, including updating their storefront banners, offering deep discounts up to 25% and increasing spend on PPC ads, email and social media marketing while queuing up “warming” messages this week.

“I think Americans are more than willing to celebrate the holidays early thanks to COVID-19 ruining their year,” Ruscin said. “They’re looking for additional ways to save money as well, so we might also see a lift in non-holiday items like food and consumables, which gives everyone an equal playing field and a big reason to participate, regardless of category.”

Colin Sebastian, a managing director and senior research analyst at Baird, said overall it’s a “smart strategy” for Amazon and others to pull holiday demand forward into October, helping relieve the inevitable congestion and capacity constraints in November and December. “An earlier start to holiday shopping might limit the number of disappointed consumers whose orders get delayed,” Sebastian said.

Consumer Participation Expected to be Strong

According to a recent survey of 1,006 consumers by Amazon seller tool provider Jungle Scout, 39% of respondents “definitely plan” to shop on Prime Day and another 33% said they may. Forty-two percent said they’ve shopped Prime Day in the past, while 58% said they’re members and another 10% said they plan to join in the future.

Another survey of 1,000 consumers by Allocadia found 54% of respondents planned to take part in Prime Day, up from 49% in 2019, with an 80% participation rate among those aged 35-44.

“Although the COVID-19 pandemic delayed Prime Day from its normal July timeframe, Amazon clearly didn’t want to skip such an important business driver,” said Greg Mercer, CEO of Jungle Scout. “Prime Day usually sees a sales spike equivalent to the Q4 holidays, but this year is unprecedented as it and Cyber Weekend and the holiday shopping season all happening within 2-3 months.”

Inventory Challenges Affecting 3P Sellers

Jungle Scout also polled 24 of its Amazon sellers before the actual dates were leaked by CNET in late September. It found nearly 90% of them had been adversely affected by Amazon’s rule changes for inventory, with 75% expressing their concern about the potential for stock outs. While two-thirds of the merchants expect consumers will buy gifts early during an October Prime Day, less than a third said they rely on the shopping event for their Amazon business.

“It is unfortunate that Amazon was not better positioned to handle increased demand for 3P fulfillment in addition to its own response to the COVID pandemic,” one seller said. “The shutdown of inbound shipments and the sudden and unexpected inbound limitations due the increased minimum IPI score has severely impacted our ability to perform accurate inventory planning and inbound shipments.”

The Inventory Performance Index (IPI) is used by Amazon to enforce stock limits on underperforming sellers in its Fulfillment By Amazon (FBA) program. Sellers who fail either of two quarterly IPI checks cannot sent product to FBA the following quarter. Amazon raised the IPI threshold from 350 in 2019 to 400 in May and increased it again to 500 for Q4.

James Thomson of Amazon seller consultancy Buy Box Experts said he was tempering his enthusiasm for Prime Day performance based on a few factors. For one, he said, wary shoppers and sellers may be picking which mega sales event to place their chips on in a short period of time. Also, he said Prime Day being further out from the holidays may mean more self-purchases than gifting, but less of that due to economic uncertainty.

“Of course, Amazon will continue to use Prime Day to sell its own devices and private label brands in categories like apparel, batteries and vitamins, and Prime memberships,” Thomson said. “But Amazon continues to need time to reinforce its Prime shipment capabilities, as orders continue to experience spotty delays across the country after the massive ramp-up in COVID-driven ecommerce orders.”

Thomson advised sellers and brands to be careful about how they leverage Prime Day this year. “While companies may discount or clear out older inventory, don’t anticipate the usual level of customer demand as past years,” he said. “We are also skeptical that customers will buy as many high-end items even if nicely discounted, due to waning customer confidence during the pre-election event.”

Boyce of Avenue7 said with inventory challenges and limitations on 3P sellers, there will be “holes in the catalog” for shoppers as items sell out, but there will be no shortages on any of Amazon’s own products. He said 2020 has been painful for many sellers unable to meet Amazon’s requirements, who faced either massive storage fees or the cost of returning goods that are often unsalable.

Boyce said while he’s managed to get most of his clients over the hump of a 500 IPI threshold, they’re still crimped in terms of how much inventory they can send to FBA due to limited fulfillment space.

“It’s going to be interesting to watch,” said Boyce, author of a new book, ‘The Amazon Jungle’ that will be released Oct. 20. “I still think it will be a record day, and Amazon as a first-party seller will benefit, but those holes in the catalog are going to be picked up by someone other than an Amazon seller.”

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