Amazon Prime Day sales fall short, retail industry faces disappointing end-to-year: Report – Crypto News

The lackluster spending is a troubling signal for the sector, which was hoping for a rebound after a year of sluggish consumer spending. Instead, retailers are facing a disappointing end to the year with few choices other than to take on risky promotions to keep their heads above water — a strategy that will widen the gap between the haves and have-nots of the sector.

The Prime Day event that concluded Wednesday, a sequel to Amazon’s big sales promotion in July, is being closely scrutinized for signs of how the retail industry will fare during the holidays. Prime Day has morphed into a sector-wide bonanza, with retailers from Walmart Inc. to Macy’s Inc. running competing events in both summer and fall. While not as big as the post-Thanksgiving Black Friday weekend, it does give retailers clues about consumers’ mood. When sales in October are humdrum, it isn’t a good sign.

Amazon brought in an estimated $144.53 in average spending per customer for the retailer, amounting to a 2% increase from last year’s tally, according to Facteus. But for other retailers running competing discounts this week, sales fell by an estimated 1% compared with last year, according to Salesforce.

Those are sales losses Amazon competitors can’t afford. Retailers entered the fourth quarter under a lot of pressure. A slowdown in consumer spending on nice-to-have goods has dealt a blow to top-line growth. Best Buy Co. Inc., Dollar Tree Inc. and Target Corp. all have narrowed their guidance for the rest of the year, saying inflation has put a crimp in consumers’ shopping habits.

Gap Inc.’s Old Navy brand said demand over the summer was noticeably weaker among its lower-income customers. Home-improvement rivals Lowe’s Cos. Inc. and Home Depot Inc. both saw sales declines and shoppers foregoing large DIY projects for smaller ones. Macy’s said its shoppers have become more intentional about how they use their disposable income, leading to slower sales growth. 

Retail rivals Amazon and Walmart are entering the season on stronger footing. A behemoth like Amazon can better afford to offer discounts. It has an estimated 167 million Prime customers in the US alone, people who typically pay $139 a year to join the company’s leading subscription program and can be counted on to shop with Amazon year after year. Walmart has the advantage of being a renowned discounter and the country’s largest grocer by sales volume. The company has seen solid sales growth even as its brick-and-mortar peers struggle under weakened consumer spending. It also has invested in its e-commerce business, with the rollout of a competing subscription program called Walmart , and leads in online grocery sales.

Smaller retailers have no choice but to continue offering deals to vie for shoppers who increasingly put price ahead of brand loyalty. Three in five consumers who plan to shop this winter say they want to spend the least amount of money possible, according to market research firm Mintel. This type of environment sets up retailers for risky discount wars as they fight for customers.

For some companies, price wars come at a high cost. Discount retail chain Big Lots Inc. reported a slight dip in its gross margin rate last quarter due to increased discounts. Dollar General Corp. expects a $170 million hit to operating profit in the back half of the year due to increased markdown activity. Foot Locker Inc. told investors in August it expects gross margins for the year to decline in part due to steeper discounts. A discount war could be what drives a bigger wedge between smaller retailers betting on promotions and retail heavyweights.

At Amazon, Chief Executive Officer Andy Jassy has been relentless in cutting costs across the business. In the last year, the company, which accounts for 40% of US e-commerce sales, has streamlined its distribution business around eight regional centers. That helped reverse its US e-commerce operating income swing to a gain in its most recent quarter and should allow the company to withstand bumps in the holiday period.

There is one bright spot for the rest of the industry: Retailers are entering the holiday season with more balanced inventories, which means they likely won’t be scrambling to offload surplus goods. That should help boost margins for retailers, who bring in about a third of their annual revenue during the holiday season. 

While a steady job market certainly soothes consumers’ nerves, it might not be enough to offset the queasiness they feel about inflation. In all likelihood, retailers are facing a less-than-sparkling holiday season.

Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. She was previously a business reporter at NBC News and a retail reporter at BuzzFeed News.

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This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

Updated: 17 Oct 2023, 07:31 AM IST