Amazon (NASDAQ: AMZN) has kicked off the holiday shopping season earlier than ever, announcing deals on thousands of items on its online store starting the first week of October. Last year, Amazon kicked off the unofficial start of holiday shopping with Prime Day, which was delayed until Oct. 13.
But holiday spending could be even stronger this year, and Amazon's decision to get started early is yet another sign that it expects to have a big quarter.
Image source: Amazon.
New warehouses, new hires, and still not enough capacity
Last year, Amazon struggled to keep up with customer orders as online sales surged amid the coronavirus pandemic. That led to the initial postponement of Prime Day, which is typically held in the summer. It was also a big reason for using Prime Day early in the fall to kick off holiday shopping, as Amazon could spread orders out over a longer period, allowing the e-commerce giant to work within its capacity constraints.
Online sales in the 75 days leading up to Christmas surged 48% last year, according to estimates from Mastercard. The payments network expects another 7.5% increase in 2021.
And Amazon is ready for it. It expanded its fulfillment network footprint by 50% last year. It's hired more than 450,000 new employees since the start of the pandemic, and it's working to bring on 125,000 more in the next few weeks.
There should be no doubt that Amazon can handle a lot more orders this year than it could last year. Yet it's looking to extend the holiday shopping season even more than it did in 2020. Rival retailer Target isn't set to launch its holiday sales until a week later with a three-day sales event. Amazon's planning to run new deals every day, encouraging customers to come back and check often.
Amazon's aggressiveness should help it continue taking market share of not just holiday retail, but online retail overall, despite its massive lead in the market already.
How much can Amazon build on last year's record?
Amazon had record sales in the fourth quarter of last year. Online store sales increased 43% year over year to $66.5 billion. But sales growth is slowing as Amazon laps the impact of the coronavirus pandemic. Second-quarter sales in its online stores segment rose just 13% year over year.
Considering online sales still account for the bulk of Amazon's revenue, analysts are expecting the company to struggle to keep up the pace of growth it's posted previously. Amazon's own third-quarter outlook calls for approximately 13% growth at the midpoint. Analysts expect 16.1%. They expect sales to slow more in the fourth quarter, rising just 13.7%.
But that fourth-quarter revenue growth appears to suggest Amazon would barely keep up with the overall growth of the market. Meanwhile, Amazon's acting like it could face another challenging fourth quarter with regards to keeping up with order volume. If online store sales growth comes anywhere close to analysts' estimates for overall revenue growth, Amazon will outperform expectations. That's just a few percentage points better than the overall online retail industry.
Keep in mind that Amazon has a fast-growing advertising business, AWS continues to grow at a solid pace, and subscription services remain a steady source of revenue growth. Not to mention third-party seller services are also outperforming as Amazon finds more ways to bring third-party merchants into its ecosystem and encourage them to run promotions during its shopping events.
Amazon's big push to get the holiday shopping season started early, its hiring spree, and its footprint expansion all point toward a massive new record of online retail sales.
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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. Adam Levy owns shares of Amazon and Mastercard. The Motley Fool owns shares of and recommends Amazon and Mastercard. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.
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