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Why Amazon put services in the spotlight for Prime Day

[July 15, 2023] By Arriana McLymore

NEW YORK (Reuters) - Amazon shoppers snagged deals on food delivery, travel and healthcare during a two-day Prime Event that ended on Wednesday, highlighting the potential for growth in services at an e-retailing giant long focused on goods.

Amazon's 200 million U.S. Prime members snapped up $12.7 billion in merchandise, a record sum representing year-over-year growth of 6.1%, according to Adobe Analytics, with many seizing on discounts to load up on back-to-school supplies.

The sale of services and experiences might not have made a huge impact on its bottom line as yet, but Amazon could be hoping that will change over time.

"Amazon has extracted all of the value that it can from being merely a pass-through of goods, and is trying to move up the value chain," said David Klink, an analyst at Huntington National Bank whose bank owns $160 million in Amazon stock.

"(It's) a decision that we’re also seeing with Walmart with its own decision to offer various services like Paramount+ with the Walmart+ offering," Klink said.

Amazon did not immediately respond to a request for comment on the shift to include services.

PRICELINE, GRUBHUB AND ONE MEDICAL IN FOCUS

Along with discounts on leading categories such as apparel and electronics, Prime Day shoppers received exclusive deal codes or discounts for hotel bookings with Priceline, Grubhub restaurant delivery and Amazon's membership-based telehealth service One Medical.

Klink said Amazon's Grubhub and Priceline partnerships are an "extension of their existing advertising strategy." He said Amazon's non-traditional partnerships are an attempt to "make retail cool again."

"If the Amazon site is where the people are at, then brands like Grubhub or Priceline want to meet the consumers there," Klink said.

Amazon's broader partnership with Grubhub, launched in July 2022 and expanded in June, offers Prime members a free one-year subscription to the food delivery service membership program Grubhub+.

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An Amazon Prime truck is pictured as it crosses the George Washington Bridge on Interstate Route 95 during Amazon's two-day "Prime Early Access Sale" shopping event for Amazon members in New York City, New York, U.S., October 11, 2022. REUTERS/Mike Segar/File Photo

Venturing into a Prime Event for the first time, online travel agency Priceline, a unit of Booking Holdings, added another 20% discount to Priceline's Hotel Express deals, which offer 60% off hotels.

Amazon offered a 28% discount for a one-year subscription to its One Medical service for U.S. Prime members who signed up before the Prime Day event ended.

EVENT A BOOST TO SALES AND ADVERTISING

Amazon said on Thursday that the first half of its sales event was the most successful in the company's history, aided by its growth of independent sellers.

The event drew record sales even though budget-pinched consumer spending slowed in the year's second-quarter.

"Amazon is seeing slower e-commerce growth, in large part because consumers are just shifting away from certain categories that Amazon is strong in," said Andrew Lipsman, a principal analyst at market research firm Insider Intelligence.

Experimenting with more Prime Day deals on services and discounted memberships could bolster Amazon's advertising services, Lipsman said. Merchants and consumer products companies pay Amazon to promote their products on the site.

Amazon reported first-quarter advertising revenue of $9.51 billion, a 20.7% increase year-over-year. Investors expect ad revenue to reach $11.2 billion in the third quarter, which will include Prime Day data, according to Refinitiv data.

Data Amazon collects through its partnerships with companies like Grubhub and Priceline could help the retail giant "fortify advertising" with other companies in those sectors, Lipsman said.

(Reporting by Arriana McLymore; Editing by Howard Goller)

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