🔔 In defence of Amazon

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Today, I've decided to make people hate me.

I'm going to defend Amazon.

Before reading, please place your moral compass next to the closest magnet...

Let's start here 👇👇👇

Had a bit of debate about this yesterday on Twitter.

Thought I'd write more about it because winners are always villains, and Amazon is a big target.

Let's unpack the argument:

First up, Amazon's unfair advantage.

• Amazon were able to undercut in-state retailers by not collecting sales taxes

This is absolutely true, and stems from a 1992 Supreme court ruling stating that retailers don't have to collect sales taxes in states where they lack a physical presence.

It was a big pricing advantage for Amazon, allowing them to gain market share through this indirect subsidy.

But who was actually subsidised by this sales tax loophole?

It's worth nothing that Amazon weren't pocketing the sales tax themselves, and the most direct beneficiary was actually the customer...

Consumers have always sought the cheapest deals and crossed state/country borders to avoid tax.

(Back in the day, EVERYONE was going on 'booze cruises' across the English channel & buying cheap French wine & beer to bring back to the UK, or buying cheap cigs abroad to sell at home)

There's no doubt that it did offer Amazon an advantage, but were they offering anything especially revolutionary?

This approach was part of a three-pronged retail attack.

• Low Prices (helped by the sales tax loophole and lower 'physical' overheads)

• Wider Selection (not limited by floor space)

• Fast Delivery

If you're CEO of a bricks and mortar retailer, surely you could see how royally f**ked you were if this continued...

And this whole story that EVIL Amazon ran these defenseless big retailers out of business is what I have the biggest issue with.

What were these retailers doing?

Let's go back to 2002.

Sears...

Some of these failures were down to horrendous decisions like buying a catalogue company just as online sales were getting established...

Why not try and beat Amazon at their own game?

If sales tax is the ONLY advantage, set up a separate online-only business, and rely on the lawyers and accountants to structure it to keep them on the right side of the law (or tie it up in litigation for a few years while you get on with the main objective).

You now have the 'problem' of everything being cheaper to buy online. Your online business is now undercutting your core business by offering 'duty free' shopping.

Can't have that.

So what does a big retailer do?

Set up the online stores regardless. Undercut in-store prices by avoiding sales taxes. Force policymakers to take action by making it so glaringly obvious, and let the media panic about job losses. Make Amazon the fall guy and say you had no option if you were to remain competitive.

Big risk, but certainly would have forced lawmakers to act on those loopholes.

If successful, the loopholes close and Amazon are forced to compete on an even 'sales tax' playing field. Big retailers already have their online platforms developed, and now the competition is on 'wider selection & fast delivery'.

Option B: Buy Amazon out. Hostile takeover if necessary.

Sears paid $1.9bn for a catalogue company in May 2002

Amazon's entire market cap was $2.22bn in September 2001.

How about the giant of retail?

Walmart was worth $256bn in 2001.

And Amazon was worth less than 10% of Walmart every year until 2007 (and again in 2009).

Yet they didn't buy them out.

See, I think that these big retailers and department stores simply didn't imagine what Amazon (and online retail) would become.

If they had, then they would surely have acted more decisively.

You'll have to excuse me not shedding any tears for the failure of businesses that chose the status quo instead of adapting and evolving.

It's the nature of a competitive business environment. Creative destruction at its finest.

Now, Amazon is clearly no shining example of morality, and has definitely received a LOT of subsidies, but they're hardly alone in that.

You might be familiar with a few of these names...

Ultimately, Amazon leverage every competitive advantage they can and that's why they're winning the game.

Just the same as plenty of businesses before them, and those still to come...

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