Amazon.. is the ‘World’ closing in…? by Dr. Clive Black

October 29, 2018 12:00 pm
View All Posts

Amazon is an amazing story. In a very short period of time this business has grown to be worth around a trillion dollars. A clear focus upon customer service backed up by a never-ending commitment to development, from the most complex advances in the digital technology world down to the most simple practical human assists, has underpinned the Group’s meteoric trading and share price valuation progress.

Amazon has been an undoubted force for good for many shoppers. Time constrained, albeit largely richer when it comes to cash, Amazon’s enormous proprietary and wider market place platform, has helped millions of shoppers to quickly, conveniently and reliably purchase goods, with a service back up that is largely second to none.

For the tech-savvy, particularly in the US, Amazon is a core part of folk’s life when it comes to buying goods and, increasingly, services. From a start in books and entertainment, the Group has deepened its penetration, now to be a generator of entertainment content – including Jeremy Clarkson (choose your own personal description of that character) – and moving from inanimate goods to the grocery sector.

Groceries have not been easy for Amazon. We are pretty certain that the business would have expected to have been further on by now than when Amazon Fresh started its commercial life on the US West coast. However, as Ocado has found in the UK, when it comes to central picking of multi-temperature and deferentially taxed goods (i.e. alcoholic beverages) it is hard to make money.

A clear focus upon customer service backed up by a never-ending commitment to development …… has underpinned the Group’s meteoric trading and share price valuation progress.

 

Accordingly, whilst we have seen Amazon invest heavily into the grocery market, much of its capital allocation has been offline, not online. Indeed, we assert that the acquisition of Whole Food Markets in the US, with seven stores trading in the UK, was an admittance of the challenges of pure-play groceries and  the reality of the stickiness of store-based grocery shopping. Amazon has further backed offline, albeit innovatively, through its Go store, which is a seamless transition from the digital payment industry to food shopping; time will tell if it works.

Whilst all this is so innovative, so intellectual and so rewarding for Amazon shareholders and shoppers alike, not everything about Amazon has been so amazing and so virtuous. Indeed, it is now not unreasonable to assert that Amazon is becoming a victim of its own success. Furthermore, whilst Amazon is very clever in many respects, it is far from tuned in on many other fronts, particularly around its impacts.

Many American and British shopkeepers will not have Jeff Bezos at the top of their Christmas card list, as he had led the charge of the online revolution; that is not to criticise Bezos & Co., as the digital revolution was going to be led by someone. However, some will complain that Amazon has perhaps advanced whilst others compete with one arm behind their backs.

In particular, they will complain about his lack of interest in the taxman – the roads that millions of miles that Amazon’s vehicle utilise have rarely if ever been constructed with the aid of taxes from the Group. So much so, that Tesco’s CEO, Dave Lewis, is now associated with calls for the British Chancellor of the Exchequer, Philip Hammond, to implement an Amazon tax; a charge on digital sales.

….not everything about Amazon has been so amazing and so virtuous… whilst Amazon is very clever in many respects, it is far from tuned in on many other fronts, particularly around its impacts.

Equally, there have been calls by trade unions and labour campaigners for sometime about the nature of Amazon’s labour process, also challenges about its regard for, or lack of it, for the environment; reflected in masses of plastic and cardboard utilisation amongst other things. In respect of the former, the very recent increase in pay for workers in the US and the UK is interesting, although whether or not Amazon believes workers paying more in PAYE in the UK represents a contribution to The Exchequer, remains to be seen.

Amazon will continue to innovate and to invest. We also sense that the Group will retain a relentless focus upon its customers. Whilst this is so, the business is facing more scrutiny – see The Times investigation into perhaps questionable charity donations in the UK – and it is required to be more transparent and credible in its behaviour. In respect of the latter, there perhaps remains more to do from a business that in many respects has an everyday touch but in others is frighteningly detached, maybe arrogant and demonstrating hubris too?

Whether Amazon has been through the zenith of its growth and achievement remains to be seen; it has been a remarkable journey to date. However, one senses that the authorities, the regulators, are starting to catch up with a business that has had a free lunch for a long time and maybe enjoyed it a bit too much. More discretion, humility and in-touchedness to its wider environment may have cut off what are likely to deeper and greater controls and constraints upon the Group than may have otherwise been warranted.

Amazon has dipped a toe into the British grocery scene and we expect further patient progress. We may yet see Amazon Go in London and other major British cities, we may yet see Whole Food Markets build out a little more, we may yet see a more material acquisition of a UK grocer. Whatever pathway Amazon takes hereon, we sense it will be forced into a more responsible and balanced approach.

Dr Clive Black

Advisor to Coriolis Consulting

October 2018