The online retailer's practices are making Walmart look like a good alternative
In less than twenty years, in another case of the high cost of low price, Amazon has become the Walmart of the online community in just about every way. Amazon, the world’s largest book store has become one of the largest stores period. In fact, book sales only make up 19% of Amazon’s total sales, which last year came to $74.5 billion.
Amazon now sells everything from electronics to groceries and has its hands in hardware manufacturing, video distribution and of course book publishing among others. Pretty soon we might see Amazon take on UPS as a delivery service.
Amazon is very secretive when it comes to numbers and speaking to reporters, but estimates are that Amazon controls 50% of the physical book market and 65% of the digital market. At one time they owned 90% of digital book sales, but Apple has put a dent in their numbers. Either way, one out of every two books sold in the United States is bought through Amazon.
As Amazon’s control of the book market grows, so does its control over publishers. As the New York Times’ David Streitfeld summed up in a recent blog post. “No company in American history has exerted the control over the American book market – physical, digital and second-hand – that Amazon does”
When Amazon came out with the Kindle, an e-reader device that allows its users to download books instantly, it changed the industry, but not necessarily for the better. Amazon priced these digital books too cheap for regular book stores to compete. The big six publishing companies complained as well that these books were often sold below wholesale price, sometimes as low as ninety-nine cents.
Frustrated, the publishing companies began looking for a better partner, which they found in Apple Inc. who was about to release the iPad. Apple’s deal allowed the publishing companies to set their own retail prices. This hurt the five publishing companies that signed on with apple a little, but they effectively regained control over their products. Soon after, Amazon was forced to raise its prices significantly.
Amazon decided to file a complaint with the Federal Trade Commission. In 2012, the Justice Department sued Apple and the five publishers for conspiring to raise prices and restrain competition. The five publishing companies settled out of court and were forced to pay millions in damages. Apple meanwhile fought the charges and is currently appealing the ruling against them.
Amazon effectively got what they wanted, even though they held a virtual monopoly on digital book sales at the time. You see, for the last few decades anti-trust cases don’t actually look at the amount of competition, judges rule to ensure consumers have access to the lowest prices possible, competition be damned. As a result, Amazon has regained control of setting their own prices.
Like I mentioned at the beginning, Amazon’s book sales are only 19% of their total. They can afford to intentionally sell their books at a loss in order to gain an increasing larger piece of the market. With less profit for the publishers, this practice will make publishers less likely to invest in riskier book projects and could dumb down what we read in general.
Aside from book sales, Amazon now captures 1/3 of all online sales in the United States. Their size doubles roughly every three years. It’s become a behemoth by working their employees to the bone, free-riding on regular retail stores, limiting choice by cutting exclusive deals with manufacturers and distributors, strong arming suppliers, selling their products at a loss and by being exempt from paying sales taxes in most states.
Amazon treats its employees arguably worse than Walmart. The warehouse workers who make up the bulk of their labor force earn on average between $11 and $12 an hour (less than a Walmart warehouse worker). In addition, Amazon’s system of employee monitoring is extremely oppressive.
Amazon tags its employees with personal satellite navigation computers that tell them the route they must travel to pick or shelve orders. However, it also sets a target time for each task and then measures whether targets are met. All this information is available to management in real time. If someone falls behind the expected designated time or is found guilty of other types of “time theft”, the employee is often disciplined or fired.
There are also security checkpoints setup throughout the warehouses to prevent real theft. After all, employees making a sub-standard wage may feel the need to steal. While these checkpoints must prevent theft, it also reduces the hard earned lunch break from thirty minutes to twenty minutes. Even with all of Amazon`s secrecy, employee horror stories have begun to surface everywhere and they’ve been well documented by Salon.com
The worst example I saw occurred at Amazon’s Allentown, Pennsylvania, center during the summer of 2011. A prizewinning series in the Allentown newspaper revealed the lengths Amazon was prepared to go to keep costs down and output high. It yielded a singular image of Amazon’s ruthlessness:
Ambulances would be stationed on hot days at the Amazon center to take employees suffering from heat stroke to the hospital. Despite the summer weather, there was no air-conditioning in the depot, and Amazon refused to let fresh air circulate by opening loading doors at either end of the depot, for fear of theft. Inside the plant there was no slackening of the pace, even as temperatures rose to more than 100 degrees. In June of that year, 15 employees collapsed in one day.
Needless to say, Amazon frowns upon unions and attempts at unionization.
Amazon’s other Practices and Special Treatment
Through its mobile shopping app, Amazon has encouraged its customers to “free-ride” their local retail stores. Customers would go to these local stores for the products they wish to obtain, ask the sales people questions about them, and then purchase the items on Amazon by scanning the barcode instead of buying it from the store they’re in. Last December, Amazon customers were actually given a 5% discount for items that were purchased with the scanning of a barcode.
Online retailers do business with an unfair advantage. There is still no federal law that allows states to collect sales taxes for purchases made online. This effectively gives online companies like Amazon an additional discount of between 4% and 10%.
Last year the Senate passed the Marketplace Fairness Act which would give States the tools to collect sales taxes on cross-State sales transactions. The bill is currently being held up in the House by Speaker John Boehner. Amazon apparently supports the bill.
Amazon continues to grow at an alarming rate (22% last year alone). At the same time they continue to bully their employees, their competitors and their suppliers. The only people unaffected by Amazon’s business practices are its customers who get treated like royalty and would rather remain oblivious to what goes on behind the scenes and enjoy their rock bottom prices.