November 11, 2015 by islandersvoice1
By David Turnoy, Orcas Island
The first installment in this two part series looked at Amazon’s treatment of its workers. Today’s article looks at how Amazon conducts its business.
Jeff Bezos started Amazon in 1995 as an online bookseller. It has grown to where it sells 40% of all new books, and 2/3 of all e-books. Amazon even owns the Kindle, the biggest-selling device for reading e-books. But book-selling now makes up only 7% of Amazon’s total business, as Amazon has moved into selling every product imaginable. Amazon is now the largest online marketer in the world, selling more than the next nine US online retailers combined. What has enabled Amazon to reach such market dominance?
One of the methods is old-fashioned underpricing to squeeze out competitors. Amazon has used its deep-pocket financing and low prices to force hundreds of America’s independent bookstores to close. Amazon outpaced the second-largest bookstore chain, Borders, to where the latter succumbed to bankruptcy in 2011. Even the largest chain, Barnes and Noble, has lost millions of dollars, closed dozens of stores, and downsized other stores. Every one of these closures has meant loss of jobs and depletion of the economic and cultural vitality of the communities previously served by these stores.
Another ploy used by Amazon has been the subsidizing of Amazon’s sales with special tax breaks for the past twenty years. All but three states collect sales taxes, but Amazon, using its status as an online merchant, has been avoiding collecting sales taxes, thereby enabling it to further lower the prices consumers pay.
A 1992 Supreme Court ruling stated that if a retailer had no physical presence in a state, it need not collect sales taxes. Bezos claims his only facility is the corporate headquarters in the state of Washington, even though Amazon has huge warehouses in about half the states, but Bezos claims these warehouses are independent contractors. In a state where the sales tax is 8%, Amazon gets a subsidy of 8 cents on every dollar of its sales, which is more than the entire profit margin of most independent shops. This has created an advantage of several billion dollars per year which has fueled Amazon’s explosive growth. Not only has this pushed many local shops out of business, it deprives communities of the sales tax revenues they would otherwise have received to be used for schools and other public services.
During the past couple of years, 21 states have decided the previous sales tax scenario was not fair and began imposing sales tax requirements on Amazon. So Amazon has moved on to another tactic, requiring states that want the jobs its warehouses provide to offer incentive grants or tax breaks to Amazon. Governors are now giving millions of their taxpayers’ dollars to Amazon in exchange for getting warehouses in their states.
Amazon further dodges its tax obligations by funneling a major portion of its global revenue into Luxembourg, where it pays much lower taxes than in the US, plus Amazon has put away $2 billion in tax-free cash in Luxembourg.
Amazon has used its massive power to purchase competitors. Upon entering a particular market, Amazon will attempt to buy up the competition. If a competitor refuses to sell, Amazon then underprices the competitor so badly that the competitor loses money and is forced to sell.
In addition, the practice of “showrooming” is hurting local businesses. Consumers visit a local business, check out the products, use their smartphones to scan the barcode of a product they want, then buy it from Amazon at a price lower than the local business’s wholesale price, sometimes even receiving a rebate from Amazon for doing this.
Amazon even shows no mercy to companies from whom it gets its products. Once Amazon has established a virtual monopoly in a particular market, it then turns on its suppliers and demands a larger discount. This is especially rampant in the book industry, where Amazon squeezes the supplier until there is no profit for the latter. Medium-sized and small publishers are especially vulnerable.
Is this the future of American and world business? Is getting a product at a slightly lower price for consumers worth these disastrous impacts on individuals and communities? The only way this will change is for consumers to spend their dollars elsewhere. Amazon has to learn that it must act ethically and treat its employees humanely if it is to continue to be a profitable business.
Disclaimer: The opinions expressed above are those of the author. They do not necessarily represent the views of the San Juan County Democrats.