3 Key Takeaways From Amazon Prime Day

Another Amazon (NASDAQ: AMZN) Prime Day is in the books. It was a unique year for the event, which had to be held back until October due to overwhelming demand in the early days of the pandemic.

Amazon touted the annual two-day shopping holiday as another record setter, though the company did not provide specific numbers on its overall performance. But market research firm Edison Trends reported that sales on Amazon were up 36% for the first 30 hours of the event, showing similar revenue gains to what Amazon posted in the second quarter this year.

As always, Prime Day helps shed light on some key trends within Amazon and the broader retail industry -- here are three things we learned from Prime Day 2020.

A graphic showing different items for sale on Prime Day.

Image source: Amazon.

1. Marketplace sellers were the big winners

Amazon highlighted the strong performance of its third-party marketplace sellers, made up mostly of small- and medium-sized businesses (SMBs). Sales for those vendors rose nearly 60% year over year, topping $3.5 billion across 19 countries.

Faced with accusations of being a monopolist that often competes with its own sellers, Amazon took the opportunity to show how the company creates value for those businesses. It noted that a recent promotion, including a "Spend $10, Get $10" deal, helped drive $900 million in sales for SMBs on its platform in the two weeks leading up to Prime Day.

The surge in marketplace sales may reflect more than the success of Prime Day, however, as starting online businesses has become popular during the pandemic as a way to make money, especially for those who have lost their jobs and income. With e-commerce sales surging globally, Amazon has likely seen its ranks of third-party sellers swell, though the company doesn't report the exact number on its platform. In its second-quarter report, Amazon noted that third-party sales outpaced first-party sales growth, and revenue from third-party seller services rose 53% in the quarter.

The Prime Day results aren't just good news for Amazon sellers. They also bode well for other third-party marketplaces like Etsy (NASDAQ: ETSY) and Shopify (NYSE: SHOP), both of which have experienced similar booms during the pandemic. Etsy saw 35% growth in active sellers in its second quarter, which helped drive a 146% increase in gross merchandise sales, or the total value of goods sold on its marketplace. At Shopify, new stores created on the platform in the second quarter surged 71% from the first quarter, showing a spike in interest for starting online businesses.

Amazon's Prime Day numbers hint that sellers on other platforms are likely doing well also.

2. Imitation is just flattery

Started in 2015, Amazon Prime Day has been so successful that it's spawned a slew of imitators. Companies like Walmart, Target, and Best Buy now offer competing sales on Prime Day in hopes of capturing some traffic from bargain hunters, while Wayfair holds a similar shopping holiday, Way Day, in the spring.

This year, however, Amazon scooped up the lion's share of customer spending. Between Amazon, Walmart, Target, and Best Buy, Amazon won 91.6% of market share through the first 30 hours of the shopping holiday, according to Edison Trends, leaving the other three companies to fight over scraps. While all three of those retailers saw their market share move higher, indicating that sales jumped even more as the overall pie grew, Amazon still reigned supreme.

That likely points to the power of Amazon Prime itself. Prime Day rewards Amazon's most loyal members -- those with Prime memberships -- and those shoppers have been conditioned to search on Amazon first before considering alternatives. After all, they want to take advantage of the benefits of the $119-per-year program, which include Prime Day deals.

None of Amazon's competitors have an equivalent to Prime, though Walmart is trying with Walmart+, and that gives the e-commerce leader a significant advantage over its closest peers.

3. Home goods are still hot

Among the top-selling categories for third-party sellers were bedding, wireless accessories, nutrition and wellness, crafts and sewing, arts, and healthcare.

The popularity of home goods as well as Amazon devices like the Echo Dot shows that consumers are preparing to hunker down for the pandemic through the winter. Home improvement supplies and home goods have generally been hot sellers since the pandemic began, boosting sales at Wayfair and home improvement giants Home Depot and Lowe's.

The presence on the list of both arts and crafts and sewing shows continued interest in at-home hobbies that now seems likely to persist through the holidays. That trend has driven a renaissance at The Michaels Companies, the arts-and-crafts retailer. In its second quarter, Michaels, whose share price had fallen to just $1 in the March crash, posted comparable-store sales growth of 12%, which included a 353% surge in e-commerce sales.

The Prime Day boom doesn't come without costs. Moody's estimates that Amazon could spend as much as $20 billion in shipping in the fourth quarter, and costs could be even higher if returns come back during the holidays. Still, by the looks of it, Prime Day 2020 was another success. Most importantly, Amazon rewarded marketplace sellers and Prime members, enhancing loyalty from two of its most important stakeholder groups.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Amazon and Target. The Motley Fool owns shares of and recommends Amazon, Etsy, Home Depot, Moody's, Shopify, and Wayfair. The Motley Fool recommends Lowe's and The Michaels Companies and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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