Throughout Amazon's (NASDAQ:AMZN) first Prime Day, news outlets were running stories referring to the sales as disappointing and unimpressive. And those were the kind ones. It was not at all what was expected from the e-retailer's 24-hour sale.
In fact, a roundup of Twitter comments, though hilarious, spoke to the public's disappointment. One tweet compared the selection to "browsing through a Goodwill in a wealthy neighborhood," and another referred to it as "the worst first date possible, I am pretty sure this is not going to lead to a second day."
But the day was nothing to laugh about—Amazon posted record-breaking results.
Amazon reported sales that trumped Black Friday 2014 by a long shot. Previously, Black Friday 2014 had been the strongest year-over-year for Amazon, but Prime Day had 18 percent more sales—a 266 percent increase from July 15, 2014.
What was the goal?
Amazon likely put a lot of preparation into planning this mid-year sale, reminiscent of the one-day explosion that came out of Alibaba's 24-hour sale on China's Singles Day last year. And while the e-commerce company was obviously looking to gain additional Prime members and make money, it also served as a test.
The day likely served as a good test of Amazon's systems to see if the distribution centers were prepared for such an influx—maybe ahead of this year's Black Friday, theorized Steve Osburn, supply chain expert and partner in the retail and consumer products practice at global consultancy Kurt Salmon.
But in the aftermath, Osburn now believes that Amazon was also using the opportunity to play with the little button they have on some Prime orders that allows members to wave two-day shipping and, instead, get some sort of reward for slowing down their shipping option—whether it be music credits or e-book points.
Osburn noted these offers varied throughout the day. "So coming out of a day like Black Friday, Amazon will know how much fast shipping matters to the customer," Osburn said. Shipping on big shopping days is an important component to Amazon, as it does not have the luxury that other retailers have to spread out the shipments due to its solid promise to Prime members.
Thus far, the day seemed to have gone smoothly according to Osburn. "In the next two days, we will see if they [Amazon] will be able to get everything onto customers' doorsteps."
So what went wrong?
The day seemingly couldn't have been better prepped for success. Simultaneous to the announcement that Prime members would receive an entire 24 hours of deals that rivaled those released on Black Friday, Consumer Intelligence Research Partners released a report that Prime membership was up 3 million shoppers, totaling 44 million U.S. members. These members are estimated to spend about $1,200 a year, almost double the $700 average a year for nonmembers.
"Looking at Prime Day from the shopper's perspective, it seems Amazon is basically selling a bunch of old inventory stock that's been piling in their warehouse," said Kurt Heinemann, chief marketing officer at Reflektion. "You don't see some of the trademark Amazon personalization elements, which is unfortunate because shoppers are stuck looking at irrelevant and even sold-out inventory. This day is a lost sales opportunity for Amazon to capitalize on the extra traffic by cross-selling and intelligently promoting products that are not on sale."
On the operational side, things ran quite smoothly for the e-commerce giant's massive sale, according to Dynatrace, a benchmarking service that tracks the digital performance for many industries, including retail. The company ran tests all day long to track how Amazon's site was holding up with the massive influx of shoppers logging on.
Dynatrace did detect a slow down deep in the transaction process around 8:00 a.m. ET, David Jones, Dynatrace digital performance expert, reported. "We noticed a number of errors showing up and the significant slow down," he said.
The slow down lasted for about six hours (see graph below) and started to improve again around 2:00 p.m. While Jones cannot comment on exactly what happened since that information is held by Amazon, he does point to something in the Amazon infrastructure that slows down the process for shoppers.
Note: Vertical axis is host response time.
|View full Dynatrace graph here.|
"I don't' believe yesterday's performance issues could tarnish the brand to a point, or manifest itself too much in customer loyalty," Jones said. "However, if this had happened to another brand, another company, I'm not sure we could make the same statement." Impressive still though, Jones noted, that at no time were there any messages that the site was down or unavailable, a feat unto itself. And in fact, most of the Twitter rants were about the nature of the products being sold or products selling out too fast, not website issues.
So what are the lessons learned from the day?
"Amazon is a very ambitious e-commerce retailer. The sheer complexity of application that they are delivering to end users, the number of requests, third parties, etc., any one of those could potentially fail at any time. There is a tremendous amount of risk," Jones said. His recommendation to other retailers is if they are going to run a big, 24-hour sale like Amazon, think simplification. Apple is a good model beacuse its retail site is much more simplified and optimized, posing less of a risk that something will go wrong.
The other lesson learned is to have the tools in place to solve a problem when it goes wrong. Clearly Amazon was well prepared and they ran into a few glitches. "Make sure your organization has the right tools in place to reduce the amount of time to find an issue," added Jones.
Osburn warned that the day was a wake-up call for other retailers that Amazon is becoming even more powerful. In order to compete, other retailers need to really focus on areas in which they can beat Amazon in order to thrive.
"Many of our customers are in the brick-and-mortar and e-commerce space, so they need to capitalize on their physical stores," Osburn said. "The need to improve their execution and do whatever they can to fight."
And for Amazon, the negative tweets do send a message that customer expectations need to be managed. If they are going to offer huge discounts in small quantities, customers need to be aware ahead of time so that they won't get angry, and ultimately cost the retailer some loyalty.
"They got some negative publicity but they weathered that storm okay," Osburn said. "Just look at how much of the spotlight they stole." Osburn could not find much focused on Walmart's new membership-based shipping program or the launch of Jet.com that is less than a week out. On Prime Day, all stories led back to Amazon.
And ultimately, sales were good…very good.
Complaints aside, sales in the United States were up 80 percent as of noon on the day of the event, compared with the same day one year earlier, according to Channel Advisor. And peak order rates surpassed those of Black Friday, according to Bloomberg.
"Prime Day has been exciting so far," Amazon said around mid-day of the sale, CNN Money reported. "We have years of experience with these types of events and we stagger the deals to make sure the fun will last through tonight."
And the effort to get new shoppers to try out Prime worked. More shoppers tried Prime globally, than any single day in Amazon history.
Even Amazon sellers, who use the marketplace to sell their brands, had a sales growth of 300 percent. In total, 34.4 million items were sold around the world—that's 398 items per second.
"Thank you to the hundreds of thousands of new members who signed up on Prime Day, and our tens of millions of existing members for making our first ever Prime Day a huge success," said Greg Greeley, VP of Amazon Prime. "Worldwide order growth increased 266 percent over the same day last year and 18 percent more than Black Friday 2014—all in an event exclusively available to Prime members. Going into this, we weren't sure whether Prime Day would be a one-time thing or if it would become an annual event. After yesterday's results, we'll definitely be doing this again."
Dynatrace was also tracking the results of some rival retailers on Prime Day to look for any spin-off activity. But from all accounts, it was rather small compared to what happened on Amazon.
"This was purely an event designed and focused on Amazon," Jones said. "During Black Friday, we would see more activities on other sites. And while we saw some upticks on some sites, we didn't see anything near what we saw on a Black Friday for other companies."
"Wednesday proved how advanced Amazon is compared to a lot of other retailers," added Osburn. The e-commerce company put months of planning into the event, finding vendors with large amounts of inventory for deep discounts. And several other retailers who jumped on the bandwagon just a few weeks outs, such as Walmart and Newegg, didn't have that benefit and probably lost money on the day.
"The last order that I tried was for a big screen TV," Osburn recounted. "It was $800 and it went on sale at 11:30 p.m. At 11:31 p.m., it was sold out, which means in one minute, late at night, Amazon got people to spend $500,000 to $1 million to buy out all of those TVs. Any other retailer would give their right arm for that kind of success."
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