By now you’ve surely heard about Prime Day, which is Amazon.com, Inc.’s (NASDAQ:AMZN) one-day annual worldwide summer sales event. If you don’t know what it is, I’d bet that’s because you’re not an Amazon Prime member (the deals are exclusively for Prime members).
Simply put, Prime Day — which is today, by the way — is little more than an excuse for AMZN to offer great deals on thousands of products.
And since those deals are only available to members, the benefits for Amazon stock are two-fold: outrageously impressive sales revenue and a sizable bump in new Prime signups.
Traditional retailers, most notably Wal-Mart Stores, Inc. (NYSE:WMT), have been struggling to compete with Amazon’s ever-growing e-commerce dominance, but none can even come close to AMZN’s market share. According to Statista.com, at the end of 2015, Amazon’s e-commerce market share was greater than 68.4%. Walmart held the No. 2 spot with 10.1%.
What This Means for WMT and AMZN Stock
Despite being the second-largest e-commerce retailer in the world in terms of market share, Walmart’s revenue from online sales was barely one-sixth that of Amazon from April 2015 through April 2016. Further, e-commerce accounts for less than 3% of total sales for WMT, compared to 74% for AMZN.
Considering Walmart’s ongoing struggle to expand its e-commerce revenue, which has included spending billions of dollars to improve infrastructure and implement more efficient systems, this year’s Prime Day could be a crushing blow to WMT. Also worth noting is that over the last year WMT stock is up a measly 0.72% compared to AMZN stock’s 70% spike.
Still, Walmart refuses to concede to Amazon and it has instead attempted to gain traction with a Prime-like membership program of its own, dubbed Shipping Pass. Coupled with thinly veiled digs at the e-commerce Goliath, WMT management hopes to lure shoppers away from AMZN with free two-day shipping and a membership price of only $49 per year.
It’s definitely possible that a small fraction of consumers — the most absolutely budget-conscious — will be attracted to Walmart’s Shipping Pass program. But in reality, the number of would-be new Prime members isn’t likely to be affected in any statistically significant amount.
Sure, the price of Shipping Pass is about half of a Prime membership, but AMZN’s product selection is massive compared to what’s available from WMT, not to mention all of the additional perks that come with a Prime membership.
What to Expect After This Year’s Prime Day
Prime Day is the perfect event for retailers that generate the bulk of revenue during the Christmas holiday season. For no reason other than “because we can,” AMZN management has essentially created a brand new shopping holiday where one never existed.
The end result of today’s Prime Day event is likely to be an even bigger record-breaking day of sales and new signups for AMZN than it was in 2015. In case you missed the news last year, the first Prime Day results brought in “hundreds of thousands of new members” and generated more sales than Amazon’s biggest Black Friday ever.
To put that into better perspective, during last year’s Prime Day, “customers ordered 34.4 million items across Prime-eligible countries, breaking all Black Friday records with 398 items ordered per second.”
I expect this year’s results to be more impressive, given the widespread media buzz and management’s experience with the first event. Amazon stock might tick up a few points tomorrow, but the real jump won’t come until AMZN’s next quarterly report.
Final Thoughts on Walmart and Amazon Prime Day
I’m not sure if there’s a light at the end of Walmart’s e-commerce tunnel (if there is, it might be attached to the AMZN freight train barreling down the tracks), but company executives certainly seem to see one.
As for WMT stock, I expect it will continue its slow and steady crawl upward tomorrow. However, at the end of the quarter, if the results of management’s efforts to compete with Amazon and push the Shipping Pass program doesn’t prove fruitful, expect a dip in WMT stock price.
How much of a dip will depend on how many consumers were successfully lured away from Prime Day, and how much money it cost to redirect them.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.