Is Amazon playing fair with local business? (Image source: Negative Space)
By Marco Krantis | @KrantisMarco
On August 18 2020, Jeff Bezos recorded an all-time high net worth of $197.8 billion, whilst in the middle of a global recession, with billions of people around the world potentially facing poverty or already in it.
Amazon is still dominating, showing the world it is a force that can not be reckoned with and a staple in society, now and in the future.
How has one man and his company—Amazon—been able to get even richer?
Face to face shopping has been placed on a hiatus across the globe due to fears of COVID-19. However, not for Amazon. Bezos kept his services open around the globe, seeking potential profit margins never seen previously.
Thanks to remaining open, globally selling nearly everything to potential consumers, sales and profit margins have soared sky high.
The poor getting poorer while the rich are getting richer
Local business will be struggling, with consumers turning to the Amazon giant for most of their shopping already and increasing during this pandemic.
A report conducted by JP Morgon Chase indicated that small businesses had roughly two weeks of cash liquidity on hand and with lockdowns ongoing for months, over 2 million small businesses in Australia could be in trouble.
As a result, millions of Australians, if the recession impacts continue, will be out of a job due to being unable to recover from the coronavirus recession. Some businesses will be forced to close shortly after.
As small businesses look to close, competition for Amazon will weaken, strengthening the company’s hold on the market.
The rise of Amazon domination
Already empty shopping centres—cemeteries for local shops—have been turned into warehouses in America.
With the growth of Amazon set to continue, Australian shopping centres could fall victim to the corporate giant.
Simple, I’ll just shop online elsewhere
Hold on a sec, not quite. Jeff knows what he’s doing. The company provides cheaper prices than their competitors at below market value, whilst offering free shipping for orders over $39 if the product can be shipped from within that specific country.
This encourages potential customers to use their services instead of a competitor’s, putting a massive dent in the outlook of their business.
Recently I purchased the book ‘The Mirror and the Light’ by Hilary Mantel, hardcover edition, on Amazon. Before purchasing on Amazon, I went do Dillons Book Shop at Norwood where the book was available for $45. However, on Amazon, I was able to pay $22 for the same product.
Supporting local business is great but where people can save money, especially if they do not have a lot of it, they will.
This, in turn, will have a flow-on effect across multiple categories in local business, affecting revenue and resulting in putting companies in financial difficulty.
What! How can they do this?
Amazon is a marketplace, anyone can sell on the platform, including Amazon itself. The company implements a ‘loss leader strategy’ which is where a product is sold below market value to simulate other sales which are pricier for the company.
For example, due to receiving massive savings on books, I will become invested as a consumer in the company. From then I will look to more expensive options, resulting in them making an extreme profit.
Along with that, handlers cover shipping costs by placing fees already in the items people are planning to buy.
For example, I buy $60 worth of books, making me eligible for free shipping. Yet, that shipping fee is already considered in the items being shipped, covering costs previously thought of being ‘free’.
Amazon will look to make profits on items they mark up 200-300 per cent.
Why don’t companies look to sell their products on different platforms?
Well, the company use a Fulfilment by Amazon operation, which is a “Fulfilment Centre that takes care of inventory, storage, delivery to customers, customer service and returns handling for your products,” as stated on their website.
In turn, handlers pay Amazon a fee for all options and, as a result, expose their businesses to a range of new customers and higher profit margins that they haven’t been able to do individually.
Amazon has no stores, meaning they aren’t required to pay overheads. They aren’t paying employees to sell you the product, you are coming to them to pay. The company can save money on all overheads involved with running stores, prioritising handling and shipping of the products from their warehouses, helping them to excel in that area.
Clever yet competitive
Amazon is extremely clever, providing consumers with every option to use their company instead of their competitors.
Users can download the Amazon app on their phone. Within that app the company provides a camera, giving people with the option to scan the barcode of that particular item they wish to buy and can compare the store’s prices with Amazon’s.
Usually, the price on Amazon will be cheaper than the one in the store. People will then see that option and decide to purchase their products from Amazon instead, stifling competitors.
Well … what does that mean for the future?
It’s clear to see the rise of global dominance set for Amazon. Their clever business practices and competitive nature are putting them in a league of their own.
If there is no government intervention across the globe hindering Amazon’s domination of the market, their power and control will continue to grow.
In years to come, many local businesses may close with Amazon looking to become the majority employer of Australian retail workers.
Currently, there are no systems in place or potential competitors to stifle the inevitable. Everything a consumer wants from a potential company can all be accessed in some way through Amazon.
Bargains will result in developing a relationship from customer to company that will be hard to separate.
So, as the domination is set to continue, competitors will have to watch out and be very clever to co-exist next to the giant.
Not quite. They are applying clever tactics in their business’ strategies, stifling competitors’ survival and making Amazon a staple in every household in the future.
They aren’t buying out competitors like Facebook is. Facebook has continuously bought out their competitors, leaving them without competition, possibility of failure or providing consumers with a choice.
Amazon is doing none of those things. Yes, their business strategies are hurting local business everywhere and that will look to continue.
However, they are playing a fair game, they are just executing at such a level that in fifty years time people may only have the option of buying items from a few companies in the world.
It will be interesting to see but there has been no evidence that any alternative could occur, unless drastic government legislature alters the inevitable.
Until then its Amazon, Amazon, Amazon and more Amazon…