Tuesday, January 29, 2013

Amazon Is Not Our Friend

Again after failing to meet expectations on both revenue and sales the market is up big in after hours. As we have seen before Amazon stock plunged when the numbers were announced then immediately did a u-turn. It was as if someone threw a switch, if you were cynical you might even scream foul and suspect manipulation. Few time in history have we seen a stock trade at such high multiples to earning. It is impossible to explain the stock's price except to say it is based of future growth and hope for earning in the distant future, this comes at a time that seven individual states have reached pacts allowing them to start squeezing sales tax out of the online retailer thus removing the crux of its advantage over other retailers.

Even if they sell goods at low prices it is hard to see why Amazon has any fans when you consider how they abuse and exploit the brick and mortar stores that line streets throughout America. These are the stores that employ our family members, support little league teams in the community, and add value to our lives. These stores build or lease space, buy supplies from the other local businesses, and pay both sales and real-estate taxes. With internet shopping posing a mounting threat to bricks-and-mortar stores and U.S. shopping-center owners smarting from high vacancies an effort to level the playing field is being made. Many supporters of local business are now throwing their weight behind federal bills aimed at requiring online retailers to collect sales tax.

How has Amazon managed to dodge paying sales tax in so many states for so long? A 1992 Supreme Court ruling states if a company does not have a physical location in a state it does not have to collect sales tax. But retailers have argued that Internet retailers such as Amazon have an unfair pricing advantage. Even big box retailer Best Buy is suffering from the competition and is being forced to close 50 of its stores. These stores have become showrooms for consumers who then look for cheaper deals online. Amazon’s "no sales tax" advantage can often make a difference with penny-pinching shoppers. When looking for big-ticket items, such as consumer electronics, the absence of sales tax can be more appealing than instant gratification.

How hard core nasty is Amazon? A while back, Amazon shut down its Texas distribution center after the state sent the company a bill for $269 million. That intimidating figure, according to the state, was the total amount of sales tax due between 2005 and 2009. After a series of lengthy talks Amazon reached an agreement where it will be forced to collect sales tax from Texas residents, but managed to avoid paying millions in back-taxes. As part of the deal Amazon agreed to create 2,500 jobs within the state, presumably by reopening its fulfillment operations. But remember by doing this they will be taking them from your state or from other businesses in Texas, Amazon is not a big job creator.

Recently it was announced that Amazon had plans to build a 1 million square-foot distribution facility in Patterson, California – east of the Bay Area – as well as a 950,000 square-foot center east of Los Angeles. The Patterson facility will not be ready until the second quarter of next year. Some people say these moves will significantly step up the company’s ability to provide rapid delivery in the state’s key markets with same-day service possible in some cases. This is an effort to offset the the fact that Amazon must begin collecting sales tax on California purchases. It is questionable as to how this will offset not charging sales tax which had been a huge advantage for Amazon up to this time.

Giant retailer Target stopped selling Amazon's Kindle e-book reader and Kindle-branded products in the spring of 2012. After selling the Kindle at its stores for two years Target will continue to offer a full assortment of e-readers and supporting accessories. They did not give a reason for stopping sales of Kindles, but I would say it had to do with "conflict of interest". At the same time Target and many other retailer have recently beefed up their online websites, lowered prices, and added several new services aimed at derailing Amazon. When you look at the fact that after surging to become the No. 2 tablet vendor late last year, Amazon's  Kindle Fire's share of the tablet market fell sharply from 17% market share to just over 4%, noting this, you have to admit their effort to crimp Amazon may be beginning to bear fruit.

Footnote; around February 19th Amazon fired its security company in Germany after criticism of  being "heavy handed" in how they treated their employees. It was reported that they used "thug like" and Nazi like tactics, it will be interesting to see if this story gains traction.

 An Additional Footnote; Three more signs that Amazon is not your friend occurred in October 2013. First Labor problems continue in Germany. The other two highlighted with a positive spin in a press conference where Bezos talked about 1,382 newly deployed Kiva robots, in Amazon’s warehouses a sign of future intentions to limit "job creation"? Add to this Bezos referring to Amazon's victory over IBM in a  legal battle to service the cloud computing needs of the Central Intelligence Agency. We can only assume this has to be in relationship to collecting more data and spying on the American people.


  1. Amazon is having an amazing year… after facing massive revenue and sales decline even the company is having still having good times, but along with this I totally agree that amazon is not anyone’s friend.

  2. Most flat tax proposals don't address payroll taxes to fund Social Security or state taxes.

    Tax Specialist in London