Amazon - Friend or Foe

At the recent UK Warehousing Association (UKWA) conference, we heard from Mark Thornton, Marketing Director at Maginus, and Professor Neil Ashworth, CEO of Collect Plus. Both Mark and Neil have first-hand experience of the behemoth that is Amazon. The session explored the sustainability of Amazon’s commitment to providing free delivery within hours on most orders alongside the learnings the UK logistics industry can take from Amazon’s rise.

Peter Ward, UKWA CEO, opened the session by showing photographs of his own teenaged children and teenagers in the Far East. The commonality between the teenagers from opposite sides of the world is their shopping patterns – both pre-dominantly on-line. Arguably, Amazon started this and remains the driving force, forever pushing the frontiers of the products and services it offers.

So, for those of us in warehousing and distribution , is it a friend or a foe? In this blog we look at the ‘foe’ argument.

Mark Thornton eloquently argued the case for Amazon being a foe, starting with some background about the Amazon ‘beast’: Mark believes the pivotal year for Amazon was 1996-1997 and coincides with Amazon being placed right at the very start of the dot.com bubble. During 1996-1997 turnover increased 10 fold from $15m to nearly $150m.

The founder and CEO of Amazon, Jeff Bezos’ vision during Amazon’s infancy was to offer better prices, more choice and more delivery options. Bezos’ 1997 letter to Amazon shareholders reinforces this, stating that he planned to add music to the products offered on Amazon and he felt that ‘other products may be a prudent investment.’ Bezos still signs off his shareholder letters by enclosing that first letter from 1997 as a reminder to them that everyday is Day 1 again. Amazon currently has over 485 million products listed and has over 300 million customers worldwide.

Mark then went on to compare Amazon with the Virgin Group, who have capitalised on complacent markets where there has been both a lack of innovation and understanding. Virgin has understood institutionalised markets such as the rail industry, banking and media and diversified their core business by shaking up these sectors.

Amazon has obviously followed a similar path but arguably has ‘chosen’ better and these choices reinforce Amazon’s obsession with data, facts, figures and using these to tighten their grip on E -commerce, 3PL – including warehousing and delivery (Amazon Prime), technology and television (Amazon Fire TV Stick) Mark predicted that the next growth areas for Amazon could potentially by Amazon Finance, Amazon 3D Printing and Amazon Utilities.

The ‘Dark Side to Amazon’, as discussed by Mark has been well-documented and this includes the scale of Amazon and also its’ employee welfare. We are all feeding the Amazon beast with our demand for lower prices such that Amazon took 10% of all new UK warehousing space in the UK in 2015 and their building of warehousing shows no signs of abating: a third fulfilment centre warehouse is being built in Doncaster for 2017. Amazon’s domination and stranglehold of space and land can only be detrimental to other companies wanting to expand their warehousing provision. There simply is not enough space to go around but it could be argued that Amazon is getting the cream whilst everybody else is fighting for the scraps. Especially when one considers that Amazon’s UK sales in 2015 were £5.3 billion from which they paid just £11.9 million in tax.

Amazon has continually under fire for poor working conditions with Amazon’s Dunfermline warehouse being described at the beginning of October as ‘Dickensian’. The “zero hours” contracts, the 13 miles of walking each day by staff and the Amazon ‘regime’ making staff physically and mentally ill are hardly great PR for a company so keen on great PR.

There are 70,000 Amazon entrepreneurs currently listing their products Amazon. Amazon entrepreneurs have used Amazon as a means of an alternative revenue stream, as a way of testing international markets and as a way of acquiring new customers. However, Mark highlighted that being an Amazon entrepreneur does come at a cost. Entrepreneurs are charged commission plus storage plus fulfilment and he broke this down as follows:

  • 7-15% charge for the sale
  • 30-40p per cubic feet storage (this will fluctuate depending on the time of year)
  • Fulfilment – Amazon only wants the fulfilment on the easy shipments (jiffy bags and small packages)

Based on the above, Mark gave us the example of an Amazon entrepreneur selling a £10.00 toaster on Amazon. The total fee that Amazon will receive, based on 1 month’s storage, is £4.11 with the Entrepreneur receiving £5.89.

A former Amazon employee, Randy Miller has stated that if Amazon does not know enough about a potential new business stream, it launches it through Amazon Marketplace, brings in retailers and entrepreneurs, watches what they sell and how, then enters the market themselves.

Figleaves.com was quoted as an example. Figleaves is an online UK lingerie retailer which sold its products via Amazon Marketplace, as well as on their own website. It had exclusivity to the Shock Absorber bra range and Amazon was able to monitor the success and profitability of this item, after which Amazon was able to go directly to Shock Absorber, undercut Figleaves and secure exclusivity for the range. Companies such as Adidas, Nike, Dyson, Mothercare and ToysRUs will not sell their products on Amazon Marketplace for fear of the same.

Mark likened Amazon to cake-baking: he believes that Amazon want to bake you the cake, sell you the cake before finally eating the cake for you! There is an inevitability about working with Amazon, particularly as their world domination continues to grow, Mark’s recommendation is to sleep with the lights on and preferably with your eyes open!