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Amazon Relentlessly Torments Rivals

Amazon fulfillment center sign, directing visitors and trucks to the right
photo by Tony Webster

I promise nothing bad will happen if you try this cool internet trick: Type “relentless.com” into your browser search bar and hit enter.

I bet you just found yourself redirected to Amazon.com, otherwise known as the place I buy everything I don’t get at my Publix supermarket.

I certainly don’t qualify as an Amazon hater. In fact, I am a Prime customer – literally. If I don’t buy something, or at least stream some video, for more than a couple of days, Jeff Bezos personally dispatches a drone to peer through my window and make sure I am not dead.

Just kidding. I think.

But much as I admire Amazon’s awesome customer service, universe-spanning selection, almost-immediate delivery to my door (whatever door I happen to be using at the time) and usually, but not always, competitive prices, I still must admit that “relentless” would have been an apt name for the online store Bezos founded in 1994.

He thought so too, at the time. The story is that Bezos grabbed the domain name, but received advice that it sounded vaguely sinister. So he named his outfit Amazon instead, recalling something exotic. But he held on to relentless.com, and just redirected it to point to Amazon’s homepage.

Youngsters may not know this, but Amazon began its corporate life as simply an online bookstore. Barnes & Noble even sued it for false advertising, claiming that it was not a bookstore at all. This was probably not true at the time, but it certainly is true today. Amazon may be the closest thing we have ever seen to an “everything store.” Or maybe it is just an updated version of the old small-town general store, which still manages to coexist with Amazon in a lot of places. I have written previously about Dan & Whit’s in Norwich, Vermont, whose motto is “If we don’t have it, you don’t need it.” Somehow, despite all logic, this is simultaneously true of both Dan & Whit’s and Amazon.

You don’t get to be the Dan & Whit’s of the entire galaxy by getting stuck in your ways. Amazon, under Bezos, has always been flexible about changing its position when the situation calls for it – in other words, whenever changing position would bring Amazon a new advantage.

Take the company’s approach to collecting sales taxes. Back when it was being run out of the Bezos family garage in Washington state, Amazon collected sales taxes only on shipments to customers in ... Washington state. That was the law of the land at the time, which the Supreme Court had affirmed in its 1992 decision in Quill v. North Dakota. Merchants could only be obliged to collect sales taxes in states where they had a physical presence.

Amazon’s customers were still technically required to pay the tax, but they were supposed to record their purchases and remit the tax to their own states themselves in the form of use tax. Businesses usually do this; consumers almost never do. So for residents of 49 states and the rest of the world, purchases from Amazon were effectively tax-free. This helped fuel the company’s growth.

As it grew, Amazon battled states that wanted to force it to collect their taxes. But it also needed to expand its network of warehouses, distribution centers and employees across the country. Each time it entered a new state, it assumed responsibility for collecting tax on sales in that state. Eventually, when it was already collecting sales tax in most jurisdictions that impose it, Amazon changed its position and agreed to collect tax everywhere.

But under the old rules, Amazon’s decision gave an advantage to smaller merchants who could still claim protection under Quill. So Amazon lobbied for Congress and the Supreme Court to reverse Quill and require online merchants, including its competitors, to collect the taxes they were not collecting. Amazon began collecting sales tax nationwide (except in the five states that do not impose sales taxes) last April. Two months later, the Supreme Court overturned Quill in South Dakota v. Wayfair.

Such tactics are more or less typical for Amazon, which has the weight to throw behind efforts that supporters characterize as strategic and critics call overreaching. In early October, eBay sent Amazon a cease and desist letter alleging that its rival was unlawfully poaching sellers for its own marketplace through eBay’s messaging system. Both companies rely heavily on independent merchants who use the sites to sell their own products. According to eBay, Amazon representatives used the competitor’s own platform to try to lure these sellers away, in violation of eBay’s user agreement and California law. (Amazon has said it is looking into the allegations.)

Amazon also recently announced it is raising its U.S. starting pay to $15 an hour, starting Nov. 1. The company will adjust wages as necessary to make sure that this change in conjunction with the elimination of bonuses and stock awards does not lower existing employees’ total compensation. Raising base pay is probably a good business decision, especially in a very tight labor market at the start of the holiday retail rush, but it is not an altruistic one.

In the short term, the higher pay helps Amazon compete for scarce seasonal and entry-level permanent help. It also puts pressure on the margins of competitors like Walmart and, notably, Kroger – the nation’s largest grocer, which competes with Amazon-owned Whole Foods. Supermarkets are a notoriously low-margin business, which do not readily support higher wages for most staff. Amazon can subsidize its Whole Foods payroll with profits on everything from cloud services to robot race cars. Kroger can’t.

The decision is also likely to garner goodwill with politicians, or at least steer them away from seeing Amazon as an immediate legislative target. Sen. Bernie Sanders of Vermont had previous introduced legislation to tax corporations when their workers received government benefits; he called it the BEZOS Act. But Sanders publicly praised Amazon’s announced wage increase. The move also drew approval from Larry Kudlow, President Trump’s chief economic adviser.

Longer-term, the higher pay rates won’t matter so much if Amazon continues to automate more of its business. Amazon’s warehouses draw a fair amount of criticism for sometimes harsh working conditions, but warehouse work is easily automated. Robots don’t demand air conditioning, or bathroom breaks, or raises.

So Amazon can keep pressuring its rivals across the entire retail sector by using its enormous cash flow to raise their unit costs while it lowers its own. You could call it cynical, or you might just call it ... relentless. It has worked pretty well so far.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book Looking Ahead: Life, Family, Wealth and Business After 55.

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