June 17, 2021

Amazon Prime Day Ignites E-commerce Competition

by Jharonne Martis.

Amazon Prime Day takes place this year June 21-22, earlier than in the previous two years. This year’s Prime Day sales will affect Q2 2021 revenue, which is estimated to be lower than last year’s Prime Day sales, which occurred in October, i.e. Q4 2020. Amazon’s overall sales were stronger in Q4 2020 due to holiday-related buying. Still, this year’s Q2 2021 revenues are on track to be significantly stronger than 2019’s pre-pandemic Prime levels (Exhibit 1).

Exhibit 1: Amazon Prime Day Sales: 2019 Actual – 2021 Estimate

Source: Refinitiv I/B/E/S

The pandemic has accelerated the shift to online and allowed the e-commerce giant to gain a significant amount of new Prime customers. It also gained enough time to analyze the data to discover which types of promotions will entice shoppers to open up their wallets on Prime Day. This year’s Prime Day will show whether this translates into customer loyalty.

Analysts polled by Refinitiv are already bullish on the company’s performance this quarter. The consensus for Amazon’s Q2 2021 EPS, including Prime sales, is $12.27. Moreover, the Refinitiv StarMine SmartEstimate data shows investors can expect positive surprises this quarter from Amazon. This quantitative tool has proven to be very valuable and accurate to help forecast financial expectations during the pandemic.

The SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as Predicted Surprise (PS%).

The Predicted Surprise for Amazon is 2.73%, suggesting the retailer is likely to beat the $12.27 earnings expectations and post a positive surprise. It also scores in the top decile with the StarMine Analysts Model, Earnings Quality and Credit Risk Models. These trends suggest analysts are bullish on the stock and likely to continue revising estimates upwards, earnings are coming from sustainable sources and credit looks healthy.

Exhibit 2: Amazon StarMine SmartEstimate and Predicted Surprise Q2 2021

Source: Refinitiv Eikon

More discounting

In a collaboration with StyleSage Co., Refinitiv discovered that the average promotional discount has been trending downward for U.S. mall stores and is now below the 2020 pandemic level. This suggests that retailers have become less promotional online in 2021.

Still, other retailers have sought to piggyback on Amazon’s mega-sale, offering discount deals of their own – on the same day. Target and Walmart already announced their sales on the same days as Prime. In fact, while U.S. mall stores have become less promotional, Target has become more promotional during Prime week this year, hoping to lure more shoppers (Exhibit 3).

Exhibit 3: Average Promotional Discount on Prime Week 2019 – 2021


Source: StyleSage Co.

The same can be said for the amount of merchandise on sale. The discount penetration (how much of the assortment is on sale) has gone down at most mall stores, while Target has been ramping up its assortment for Prime Day.

Exhibit 4: Discount Penetration on Prime Week 2019 – 2021

Source: StyleSage Co.

M&A and staying relevant

Retailers are not lazy about their survival and have mentioned in their press releases that the e-commerce trend is here to stay. As a result, they have been investing in their omnichannel experience, entering partnerships with other brands and expanding their portfolios with strategic acquisitions.

In an effort to gain a wider customer set, Etsy announced it is acquiring Depop. The secondhand marketplace targets Gen Z shoppers, and marks Etsy’s biggest deal in its history.

In fact, 2021 is the strongest year for Retail M&A since our records began in 1980. Retail M&A totals $88.5 billion so far this year, a 196% increase compared to year ago levels.  Internet & Catalog Retailing totals $29.0 billion, a 779% increase compared to last year and an all-time year high.  Internet & Catalog Retailing accounts for 33% of total retail M&A, the highest percentage since 2018, when Walmart purchased a 77% stake in India’s Flipkart Group for $16.0 billion, according to Refinitiv Deals Intelligence.

Meanwhile, Netflix, which has different partnerships with retailers such as Target, is now offering its own movie/series’ merchandise on its new Netflix.shop marketplace.

In order to compete with online giants Amazon, Walmart and Target, other retailers are offering more ways to pay and are including third-party sellers on their sites to help increase customers and generate revenue.

Urban Outfitters, J.Crew and Express are among those retailers offering third-party sellers in their marketplaces. The StyleSage data shows that within these marketplaces, the average promotional discount and discount penetration levels traditionally come from the host retailer. Still, both the host retailer and third-party sellers have on average roughly the same sold-out rate, suggesting the relationship is mutually beneficial (Exhibit 5).

Exhibit 5: Discount Penetration, Average Discount, Sold out Rates for Retail Marketplace- June 2021

Source: StyleSage Co.

Moreover, the StarMine Analyst Revisions Model (ARM) is highly predictive of both the direction of future revisions and price movement. Both Urban Outfitters and Express, which offer third-party sellers on their marketplace, score in the top decile, suggesting that analysts are likely to revise earnings estimates upward (Exhibit 6). Express currently has a revenue estimate of $442.06 million for Q2 2021.

However, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, which is different (in this case higher) than the consensus estimate. The analyst expects Express to report revenue of $472.80 million, well above the mean.

Exhibit 6: Urban Outfitters StarMine Model Scores


Source: Refinitiv Eikon

E-commerce

The amount of money consumers spent online continues to grow. Several factors, including the pandemic and growing use of mobile phones, have contributed to the shift towards e-commerce and likely will only increase. In 2010, e-commerce transactions made up 4.2% of total retail sales. That percentage grew to 13.8% in 2020, and is forecasted to rise to 14.9% in 2021, according to Refinitiv IFR (Exhibit 7).

The U.S. government posted a record $215.0 billion in Q1 2021 retail e-commerce sales, a 39.1% increase from a year-ago. The Refinitiv forecast suggest e-commerce sales will continue to see double-digit growth over the next quarters, indicating that consumers continue to gravitate online despite pandemic restrictions being lifted.

Exhibit 7: E-commerce as a percentage of total U.S. Retail Sales 1999 Actual  – Dec 2021 Estimate

Source: Refinitiv IFR

 

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