Do Retailers Have an Answer to Amazon Prime Day?

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Has there ever been any real doubt about what Amazon.com Inc. (NASDAQ: AMZN) is promoting on its Prime Day sale? Sure there will be sale pricing on selected items announced every few minutes, and both Amazon and its marketplace resellers want consumers to buy these items, but what Amazon really wants are new subscribers to its Prime service.

To achieve that goal the company has made two big changes this year. First, Prime Day is now 30 hours long, not 24 as in the past two years. Second, Prime Day offers this year have been expanded to include consumers in India and China, the world’s two most populous countries.

Next Wednesday’s press release from Amazon will surely gush about sales volumes on everything from FireTV to barbecue forks and how this was the biggest event in Amazon’s history, and all of it will be true. And that’s where other online retailers’ fight to compete with Amazon begins and ends.

Retail analytics firm EDITED has looked at online data from the past six weeks to determine what, if anything, other retailers have been doing differently this year in the run-up to Prime Day. The short answer is discounting. Katie Smith, senior fashion and retail analyst at EDITED said:

While last year there was little response by online retailers to Amazon Prime Day, this year we’ve witnessed a deluge of discounts ahead of July 11 – particularly in apparel.

This year’s average discount at stores like Lord & Taylor, Neiman Marcus and Bon-Ton is nearly 40%. And the number of products that were first discounted over the July 4th holiday weekend grew by 32% year over year. Prices on more than half (51%) of these first discounts were slashed by 50% or more.

For example, accessory and footwear categories have seen the largest increase in price reductions. Discounts in the premium market have risen by 50.6% while luxury reductions have dropped slightly. Mass market products getting price reductions rose 19% year over year.

That strategy has not been a big success. According to EDITED, sellouts have dropped by 15% within the same timeframe, indicating that retailers began with higher stock levels on the reduced-price items or that consumers were less enticed by the sales.

If the former, then the retailers made a tactical error. If the latter, then they may be in for even more pain as Amazon reels in their customers. Once a consumer signs up for Amazon Prime, traditional retailers have very limited options on how to compete, and none of those options is cheap.

That’s what Prime Day is all about. Prime membership grew from an estimated 58 million U.S. members at the end of the first quarter of 2016 to 80 million members, each of whom spends an estimated $1,300 annually with the company. Non-Prime members spend about half that much.

Amazon will increase the pressure in the U.S. cities where its Prime Now same-day delivery service is available with special deal pricing beginning Saturday on selected items. New Prime Now members get a $10 discount on their first order and $10 off their next order. Selected Prime Now orders on Prime Day also get free two-hour delivery all day.

If retailing were a poker game, Amazon has just matched retailing discounts and raised the bet significantly. And it’s not bluffing.