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Posted By KIS Finance2nd July 2018
Amazon, the e-commerce giant has been dominating the way we shop for the last couple of years.  With the growth of the on-line market place, traditional stores have been hit hard, with falling profits and multiple store closures making regular news headlines.

Since 2017 we have seen large retailers such as Toys R Us, Maplin, Jaeger, Agent Provocateur and Jones the Bootmaker close their doors. Others like House of Frazer, Homebase, Mothercare, New Look and Marks and Spencer’s have announced radical plans to downsize and reduce their number of stores. A further group including big names such as Debenhams, Tesco’s and Sainsbury’s are dramatically cutting jobs following profit warnings.

 

Is this change inevitable?

In a digital age, the move to an increase in on-line shopping is probably inevitable.  People want the choice and convenience that this offers, as well as the potential cost savings associated with operators like Amazon. It’s hardly surprising that Amazon’s easy on-line ordering process and superfast delivery appeal to those with increasingly busy lives.

 

Amazon set to take over new markets

This week we have seen two announcements from Amazon that show their appetite for further expansion by entering into new markets.

Firstly, Amazon announced that they were considering setting up their own local delivery networks, news which sent the share prices of courier companies FedEx and UPS tumbling by nearly $3 billion.

A second announcement later the same day had a similar effect on share prices when Amazon announced their purchase of PillPack, a pharmaceutical distribution company.  This saw a fall in share prices of around $14.5 billion for major players, Walgreens Boots Alliance, CVS Health and Rite Aid as well as a number of other drug distribution organisations.

In total these two moves by Amazon knocked $17.5 billion of the value of 8 companies in 1 day!

 

Why should you care?

A fall in share prices may not seem like something that the average person needs to worry about.  However, what it does show is the frightening amount of power and influence that Amazon has when the very fact that they are entering a new market sends current investors running.

In the longer term it is likely to lead to yet more companies folding and the knock on effect of job losses, as customers switch to use Amazon’s services.  Whilst the opportunity to have your prescription drugs sent to you via Amazon’s speedy network may be appealing, is it worth it if it means that we will see the end to the highstreet chemist in a few years time? Think how useful it can be to go into a chemist and consult a pharmacist for minor ailments – something that you might not be able to do in future.

Similarly, we can expect to see job losses in courier firms if Amazon proceed with their plan to enter into this market too.  Whilst current staff may find new roles within Amazon, they are not known for paying well, and their staff operate under high pressure targets.

 

Are Amazon invincible?

Interestingly Amazon’s own share price has only fluctuated by an average daily price change of 0.3% over the past year.  They have seen a few downward shifts, particularly after Tweets by Donald Trump commenting on their impact on other retailers and on their payment of tax.  However even these drops have been short lived, with share prices usually rallying in a matter of hours.

So how does Amazon exert so much power?  It’s simple – they are cash rich with an unparalleled logistical network which means they are set up ready to hit the ground running faster than other companies entering a new market.

In fact, the term being "Amazon'd" has been coined to describe companies whose investors have bailed out on hearing that the e-commerce giant is considering entering their market.

 

Is this the face of progress?

The question is, do we just have to accept these changes as part of progress?  After all, there was an outcry from workers when Henry Ford introduced the first production line in 1913 but imagine the car industry today if automation hadn’t taken off. 

Progress should lead to improvements, but this isn’t always the case.  Take the example of the banks who outsourced customer call centres aboard on the basis that this would reduce costs.  Levels of complaints have increased, with customers frustrated by the poor quality service.  Instances of fraud have also increased, with customers of BT and Talk Talk being just two of the companies who customers have been affected.  Automated services and websites that have no phone number to enable you to speak to someone direct are also areas of “progress” that have left the customer worse off.

One thing is for certain, there is currently no end in sight to Amazon’s ambitions for growth.  We will just have to wait and see what the impact of this will be in the coming years.

 

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