Wednesday, July 12, 2017

Amazon's Engulf And Devour Strategy Problematic

Engulf And Devour Strategy Problematic!
While discussing Amazon with someone concerned about small businesses closing in the area she made the statement that "companies that compete in any way with Amazon would be nuts to buy any product or service from them at any price." Not feeding my enemy has always been a key part of my business strategy, I feel it is never wise to give anything to my adversary that strengthens them. Sadly retail giant Target which sells the Amazon Kindle and Fire in its electronics department and has not learned this valuable lesson. The same might be said about the young clerk at a Macy's store who recently told her customer she buys everything online at Amazon because of their good prices. Consider this proof people who praise and purchase produces from Amazon seem oblivious to the fact they are putting their local brick and mortar stores out of business. These are the stores that pay local taxes and supply jobs to our friends and families.

Almost every day we see articles about how Amazon is buying this or that company or expanding into another business sector. Amazon's recent announcement they were purchasing Whole Foods got me thinking their engulf and devour strategy will eventually max out then come back to haunt them by generating a backlash and scorn. With their constant efforts to extend their reach and to become everything to everybody as a one-stop total fulfillment center, they are stepping on a lot of toes. Any company stupid enough to hire Amazon to act as their agent and paying this competitor to ship their products to customers are adopting a destructive strategy akin to cutting their own throat so they can breathe more efficiently. Amazon is not our friend and of that, we should take note. This brings front and center the fact we should consider and think about what kind of society and world future generations might want to live in.

Fast approaching is an era when robots and automation may take many of our jobs and before it happens it would be wise to recognize the role of the human animal in the overall scheme of things. More and more the subject of business replacing workers with robots is becoming more common place. this should be a big concern because it goes directly to the heart of future job creation. It should be noted that companies such as Amazon are by far the chief beneficiary of such labor saving developments because only large companies and big business have the critical mass and financial resources to quickly adopt. This spells big problems for small business going forward and society in general when it comes to job growth. We should not underestimate the crucial role small business plays is our economy as its the main job creator helping to train and hone the skills of workers.

I deal with small businesses on a day to day basis and will tell you they face many challenges and that they are very important to our communities, society, and the economy. This is why "Small business failures should receive a lot more attention than they do."  Small business is hard, going into business is risky, and many people are not up to the task. Sadly we see a lot of people who start down the path of starting a small business fail and hit the wall. As a property owner that leases space to many start-ups, I have a keen interest and knowledge of the microeconomics that surrounds them and their long and short-term effect on the economy. With most business start-ups having a very short lifespan of just months or around a year, the short-term burst of spending is quickly followed by the longer-term negatives that take a toll on all of us when a small business in our community fails. 

To be blunt social engineering is what mankind and government do. We have developed governments that create the laws and rules that shape and mold how we live. The big challenge is creating something that is sustainable which means planning our future in a way that we do not set ourselves up to crash and burn at some future date. Unfortunately, long-term planning has not been something politicians excel at, motivated to consider, or are even good at, our system is geared at getting politicians re-elected and fulfilling the most pressing needs of today.  Things like profit, greed, and quenching our incessant desire for growth are placed in front of longer term issues and needs. With this in mind, it is time we level the playing field when it comes to e-commerce retail sales and how they are taxed.

While I'm fully aware of the argument that only through creative destruction can we progress and make progress Amazon is subsidized in ways that often go unnoticed. Not only does Amazon often fail to have the best price or service but buying from the company carries the hidden cost of destroying businesses rooted in our communities. While many people have heralded Amazon's disruptive nature and technology as game-changing much of the companies success is based on making little or no profit and lucking into an era where easy money and low interest rates have allowed rapid expansion mask many of its core weaknesses. To some investors, this is why the current valuation of Amazon's stock seems outrageous and brings forth the image of a Ponzi scheme driven by hype and self-promotion.

The question exists as to whether the hype machine we know as Amazon will be able to turn the corner into becoming truly profitable but if so its success should not be on the backs of those brick and mortar stores that serve our communities. We must decide where e-commerce fits into our lives and not grant it special treatment and advantages allowing it to become a destructive force that employs predatory tactics. If directed properly e-commerce can continue to bring efficiency and promote competition especially in specialty and low volume markets. Amazon, however, goes well beyond this even competing against companies it ships and sells for. This means it would be wise to shy away from working with Amazon as it rushes to engage in cross-company promotions to get its foot in the door.

2 comments:

  1. I do think Amazon (and online shopping in general) is partially to blame for the mass closing of various retailers, and perhaps more to blame for the smaller businesses closing. However, one big culprit (who should all just die painful deaths) are private equity firms.
    It's common practice for them to buy a retailer, load them up with debt in someway, or split out their real estate holdings and keep charging the retailer high rent. And then we wonder why the retailer is failing? The private equity manager doesn't care since much of their pay is not linked to performance. Of course, this happens to other non-retail companies as well.
    I would fully support making schemes like this illegal, though how that can be accomplished is debatable. Deliberately buying a public company, simply as a scheme to destroy it by taking all value from it is morally wrong.

    ReplyDelete
  2. And just to comment on Amazon itself. From what I've read about the internal workings of the company, I'm just waiting for the day when it implodes. How long can such a nasty, anti-employee environment continue? I'm not just talking about the blue-collar hourly contractors at the warehouses. I'm mostly talking about the tens of thousands of white-collar workers, who are pretty much micro-managed by the virtue of all the data that is collected about their performance, and by the "instant feedback" Amazon provides for internal employees to "report" on their colleagues (more like sabotaging of their fellow employees). And forget about work/life balance. It does not exist at Amazon, unless you happen to be lucky. Jeff Bezos is in denial IMHO. Only time will tell.

    ReplyDelete