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The Customer Benefits Most from Walmart and Amazon, Christmas in July “Prime Day”

On the day before Amazon Prime Day I published a blog entitled “Leveling Your Supply Chain or Leveling Your Competition”.

Customer Benefits Most from Wal-Mart and Amazon Prime DayPrime Day ended 36 hours ago and we have seen a large amount of press on the results. Much of the information is preliminary and comes directly from Walmart and Amazon, one needs to be careful on how to interpret the results. We can learn many things from Prime Day:

  1. Volume:
    1. Amazon promised more deals then Black Friday, 2014. They did this by offering “Deals of the Day”, “Lighting Sales”, and a lot of price reductions. Amazon delivered as promised  and in fact  reported 18% more sales than Black Friday
    2. Walmart promised thousands of items on sale. Walmart did this by having some special deals and thousands of “rollbacks” (Walmart’s jargon for discounts). Walmart produced the highest volume of online orders in their history and also the biggest day this year for same-day click and collect.
    3. Who Won: A tie, both did as promised and achieved great results.
  2.  Customer Satisfaction: 
    1. Amazon’s customer satisfaction was not good. The social media was half positive and half negative, which is really poor given the magnitude of the sale. The dissatisfaction focused in on the “Yard Sale” nature of clearing out products, the speed at which items sold out, and the misunderstanding of the wait list process. But, to put this in perspective Amazon wanted to impress new temporary Prime members with the breath of products available via Prime. I believe Amazon took an unfair social media blasting. People attended a yard sale and then complained they were at a yard sale, becoming disappointed when they did not get the special deals they wanted. There were limited quantities of special deals. The wait list issue was confusing and I am sure Amazon will fix this, but Amazon did a good job with getting new folks to try Prime. For the new Prime customers satisfaction was high.Therefore, Amazon accomplished it objectives even though some long time Prime members were disappointed.
    2. Walmart’s customer satisfaction was good, but some customers wondered about the number of deals that were offered and how this stacks up with “Everyday Low Prices”. Others felt good about the rollbacks because they didn’t disappear in 10 minutes or in 24 hours like the Amazon deals, but rather the rollbacks will stay in place for up to 90 days. Therefore many customers felt Walmart’s deals were a real sale as opposed to the Amazon short term “gimmicks”.
    3. Who Won: Walmart won the overall customer satisfaction competition, but most of Amazon Prime members do not shop Walmart.com. For Prime Day Amazon’s target folks (new Prime members) Amazon did accomplish its objectives.
  3. Profitability:
    1. Amazon is not interested in their short term profitability. They were not profitable with their online sales for July 15th, but this was not their objective. They wanted new Prime members. New Prime members will contribute to the long term profitability, mission accomplished.
    2. Walmart is focused on their profitability (short and long term) but this event did not contribute to either. Many of the rollbacks will not result in incremental sales, just less margin. But, they needed to respond and they did. So, probably a footnote in next quarters earning statement about this event as an investment in eCommerce.
    3. Who Won: This is a hard call because Walmart is treated by Wall Street like every other public company, except for Amazon. Last quarter Amazon reported a profit of $92 million and Wall Street celebrated (stock went up in after hours trading last night 17%). Walmart’s profits last quarter were $3.3 billion, but it appears when the market opens today, Amazon for the first time ever will be more valuable than Walmart. Given the positive news coming from Prime Day one would need to conclude that although neither Amazon nor Walmart made money on July 15th, given how the market views Amazon long term view of profitability that Amazon won this factor.
  4.  Supply Chain: 
    1. Amazon has been working hard on their supply chain and so far it appears their supply chain has stood the test of Amazon Prime Day. The lack of news about capacity constraints is a positive test for Holiday 2015, Amazon’s supply chain did well.
    2. Walmart has been working hard on their supply chains (omnichannel) and has stood the test of record online and click and collect volumes. The lack of news about capacity constraints is a positive test for Holiday 2015, Walmart’s supply chains did well.
    3. Who Won: A tie.
  5. Overall: 
    1. Amazon says they have attracted “hundreds of thousands” new Prime members. They went into July 15th with 44 million Prime members and averaging a 70% conversion rate of temporary Prime members to ongoing Prime members. The 44 million is up over 41 million a quarter ago. A 3 million increase in Prime members over a quarter is about 33,000 new members per day. Given that July 15th was a mid-week, mid-summer day, I would say if they could match their average of 33,000 it would have been a good day. Not really knowing what “Hundreds of Thousands” of new temporary members really is let’s assume the lowest number of 200,000 that meets this definition. A 70% conversion rate would put the day at 140,000 new Prime members. Therefore, I must conclude that Amazon had a great day on July 15th.
    2. Walmart also had a very good day on July 15th. Their click and collect, in-store traffic, and online sales were all very good when compared to a typical mid-week, mid-summer day. Walmart clearly demonstrated their ability to hang with Amazon as an online retailer and have the supply chain capability to deliver.
    3. Who Won: As I predicted, the big winner for July 15th were the customers. They saved money and got some great deals. Tied for second place were Amazon and Walmart. In a distant third place were all the other retailers who had a Christmas in July event but who did not make the headlines. In fourth place and out of the medal presentation were all of the other retailers who did not play, but rather took a summer vacation while Amazon and Walmart continued to innovate and claim market share.

The idea of Christmas in July is a good idea. It allows for the leveling of the supply chain in the muggy days of summer and it fully supports the leveling of one’s competition. Congratulations to Walmart and Amazon. The rest of you need to develop a strategy to claw back your market share.

About Tompkins International

Tompkins International is a supply chain consulting and implementation firm that maximizes supply chain performance and value creation. We enable clients to be more profitable and valuable, while also becoming more agile, flexible, and adaptive to the marketplace. Tompkins collaborates with client teams to develop improved operations strategies, supply chain planning, and execution across all the Mega Processes of supply chains (PLAN-BUY-MAKE-MOVE-DISTRIBUTE-SELL). Tompkins is headquartered in Raleigh, NC and has offices throughout North America and in Europe and Asia.

CONTACT:
Andrea Epstein
, aepstein@tompkinsinc.com

Twitter: @jimtompkins
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