The true cost of Amazon to retailers and workers

Amazon is coming to Australia this month but seems like smaller retailers are not aware of the threat.

According to The Guardian, Amazon giant generates nearly as much revenue as Australia’s supermarket duopoly of Wesfarmers-owned Coles and Woolworths combined, and Morgan Stanley estimates the company will generate $12bn of Australian sales by 2026.

Just as a single superstore visit suited consumers more than visiting a medley of small businesses, Amazon’s all-encompassing product range and rapid response time represents another level of convenience again: the company guarantees delivery in some areas of the US within two hours of customers clicking through to the online checkout.

Moreover, Amazon is pioneering of the latest technologies – robots in warehouses, bots, delivery drones, a voice-activated virtual assistant and an Amazon Prime membership package that comes with a streaming video service to rival Netflix.

The consumer behaviour analyst Barry Urquhart speaking about the scale of the Amazon challenge says: “Australian retailers are unprepared, ill-informed and do not know what they are going to address. I don’t think they appreciate what Amazon is. A lot of people are confused. They think, ‘I am protected, I don’t sell books and CDs.’ But Amazon is a platform, like Uber, and we saw what Uber did to taxis.”

Amazon took on half of all e-commerce sales growth in the US last year and has piled huge pressure on American retailers, which are closing at record pace: 2017 is on track for over 8,500 store closures, dwarfing the 6,200 that shut their doors during the recession-hit turbulence of 2008.

An Institute of Local Self-Reliance calculated that Amazon has eliminated about 149,000 more jobs in retail than it has created in its warehouses. The company’s embrace of automation is anticipated to further increase that gap, including the roll out of cashier-free physical stores where customers can walk out with their shopping while the payment is taken care of automatically through their Amazon account.

A UBS survey found that Amazon’s arrival in Australia is predicted to eat up 16 per cent of retailers’ discretionary earnings within five years, including 31 per cent of department store giant Myer.

However, Amazon says that Australian government should not be worried. The retail giant arrival will create hundreds of jobs in the Melbourne fulfilment centre and thousands of jobs across Australia nationwide.

The National Union of Workers’ national secretary, Tim Kennedy, says the union wrote to Amazon in mid-August seeking a meeting to discuss plans for Australia but never heard back. He says a failure to engage will fit with Amazon’s record of poor labour practices.

“These include the electronic monitoring of workers and harassment to the detriment of safety,” he says. “There is a well known case of the warehouse in Allentown, Pennsylvania, where workers are forced to work in extreme heat and when people drop they are whisked into ambulances that are stationed in the car park to remove them and replace the worker with standby workers on site ready to fill the hole. Quite shocking really. No respect for the essential humanity of people.”

Amazon has a long and successful track record of pressuring employees to avoid unions, going right back to the year 2000 when leaked company documents detailed strategies to warn workers that unions are an expensive waste of time and telling supervisors to watch out for union activity signs such as “hushed conversations” among workers and “dawdling in the lunchroom and restrooms”, says The Guardians.

Investigations in the US and Europe have painted a detailed picture of what working at Amazon can entail. Half-hour unpaid breaks are partly eaten up by the time it takes to enter and exit fulfilment centres, which at some locations require queuing up to be searched for stolen contraband as nearby televisions loop a rogue’s gallery of silhouetted former employees fired for stealing.

Employees are discouraged from using the bathroom and allocated demerit points for taking too long. They also lose points for taking sick days – examples include a worker penalised for being hospitalised with a kidney infection and another who was put on performance review for allowing breast cancer treatment to impede her work.

Adding to these facts, fewer retail workers meaning fewer people paying taxes, Amazon itself has been questioned over its own tax contributions around the world. The most recent controversy came from the company paying just €16.5 millions in tax on European revenues of €21.6 billion in 2016 through the low-tax jurisdiction of Luxembourg.

The multinational tax avoidance expert Antony Ting, an associate professor at the University of Sydney Business School, says: “This kind of structure is common among e-commerce multinational enterprises such as Google, Facebook, Uber and Airbnb. The core of these tax arrangements is to locate intellectual properties (eg the digital platforms) to a low-tax jurisdiction (eg Bermuda), thus justifying shifting profits to that country. For these digital companies, these intangible assets, which are extremely mobile, are often their most important and valuable assets.”

Ting notes Amazon will be encountering some specific challenges to its business model in Australia in the shape of the multinational anti-avoidance tax law (MAAL), introduced in January 2016, and the diverted profits tax (DPT), which came into force in July. He says the MAAL has had some success in securing tax revenues out of Facebook and Google, with the former increasing Australian profits by a factor of 10 and Google more than doubling local profit.

Ting notes the MAAL appears to still fall a significant way short of securing tax revenues in line with the global profit margins of these companies – Facebook Australia’s net profit margin was 1 per cent compared with a global net profit margin of 37 per cent.

Gigi Foster, an associate professor at the University of New South Wales business school, says she is “broadly optimistic” about the impact Amazon will have on Australia.

“There is the potential for positive effects on Australian consumers, who have languished because of restrictions on imports,” she says. “I think it’s great you will have the option to buy a lot more stuff, people will be happier because of that. The more you can buy, the happier you can make yourself and your family.”

Foster acknowledges there could be problems for Australian retailers, suggesting that small enterprises need to make sure they stock niche products not available on Amazon.

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