U.S. e-commerce leaders rolled out holiday deals early this month as excess inventory and inflation trends drove Amazon.com Inc., Walmart Inc. and Target Corp. to compete for bargain shoppers' approval.
Amazon launched its second Prime Day event of the year on Oct. 11, with savings on a variety of discretionary goods including electronics, kitchen appliances and toys. The two-day Prime event closely followed Target's "Deal Days" and overlapped Walmart's "Rollbacks and More," both of which featured deep discounts on similar items. While Amazon's Prime event appears positioned to reinvigorate slowing sales, Target and Walmart are working to clear excess inventory following sudden changes in consumer demand, retail analysts said.
Online retail sales spiked to more than 16% of total U.S. retail sales in the second quarter of 2020, at the height of pandemic-driven lockdowns in the country. Those sales have since tapered off to about 14.5% of total retail this year, according to estimates by the U.S. Census Bureau.
"We think online will be important for the big retailers over the holidays, just much less so than it has been the past couple of years," said Michael Baker, managing director with D.A. Davidson. "Consumers are coming back to stores."
The plateauing of e-commerce sales after two years of rapid growth is weighing on Amazon, in particular. The company reported a second-quarter net loss of $2.03 billion this year compared with a profit of $7.78 billion for the same period in 2021. Amazon's online store sales fell about 4% during the period. The company is moving to cut costs after investing heavily in its logistics network and personnel during the past two years.
Still, Amazon stands to benefit from a bigger e-commerce market that is still growing, albeit slower than in recent years. U.S. retail e-commerce sales are projected to reach $1.672 trillion in 2026, up from $1.050 trillion in 2022, according to eMarketer.
Target grappled with excess inventory as consumers abruptly pulled back from buying discretionary items like home furnishings and apparel after a spike in gas prices earlier this year. Walmart was more insulated from the shift as the majority of its sales now come from grocery, said Davidson's Baker. Both brick-and-mortar retailers also are among the U.S.'s top e-commerce sellers. The two companies reported profit losses despite online sales growth during the most recent period.
Target's profits dropped about 90% in the second quarter as the company worked to move inventory through deep discounts. Target's online sales grew 9%. Target CEO Brian Cornell said during the company's second-quarter conference call that Target had largely worked through the financial impact of its excess inventory. "This positions our business to deliver a meaningful improvement in operating margin rates in the fall season," Cornell said.
Walmart's operating profits declined about 7% in its latest quarter while e-commerce sales were up 12%.
Amazon and Target declined to comment for this article. Walmart had not returned a request for comment as of press time.
Heading into the holiday sales season, retailers are starting to see supply and demand normalize, though consumers' budgets are tighter than last year. Many U.S. households may be drawing on last year's excess savings to drive holiday spending this year, as not all of the money received from government stimulus payouts was spent, said Jack Kleinhenz, chief economist for the National Retail Federation.
"The financial buffers are there and are helping people along in these tight times," Kleinhenz said.
Consumers' inflation concerns are also pushing retailers to offer deals that were not seen last year, analysts said.
"People were so flush with cash during the pandemic and last year that retailers were able to get away with minimal discounting," said Andrew Lipsman, principal analyst for eMarketer. "It's not the case this year."
But companies are able to manage discounts and demand better now that supply chain disruptions have eased.
"Last year, everyone was struggling to get their shelves stocked," said Arun Sundaram, a senior equity analyst with CRFA. "Now that they are in better in-stock positions, online retail could really improve this year versus last year, especially if inflation remains high and people want to not drive to the mall or the stores."