Amazon: a force for good?

COMMENT: As pressure mounts on the government to help high street retailers, there has been talk that Philip Hammond may use next week’s Budget announcement to address the issue by introducing an immediate £300m tax cut for the most deprived high streets in the country. In addition, earlier this month Tesco chief executive Dave Lewis called for the introduction of an “Amazon tax” on online sales to prevent more high streets chains collapsing, proposing a 2% charge on all goods sold online. Failure to tax online behemoths against a backdrop of extortionate business rates for bricks-and-mortar retailers has over time created an uneven playing field. As the online giants now make the move from clicks to bricks, should they be concerned, given the upheaval in the sector this year? Game-changers Shopping really will never be the same again. If you go back a decade, the iPhone had just celebrated its first anniversary, Amazon languished at 45th in the world rankings of the largest retailers (it’s now the third largest) and the all-under-one-roof concept of selling goods still made perfect sense. While there is no doubt that Amazon has taken a competitive advantage in the environment in which it trades, what can’t be denied is that it has been a force for good. In a time when disruptors in the property industry are frequently lauded, what Amazon has achieved in a short space of time should be recognised. Since its inception in 1997, Amazon has been on a relentless quest to stamp out complacency in the retail sector. Most consumers will remember when delivery times for goods were more than a week. In the age of Amazon Prime, next-day delivery is now the norm. The battleground for retail spend will move away from saving money, to saving time, energy and effort. Amazon has infiltrated (some might say invaded) every nook and cranny of modern living – Amazon Prime, Music, Video, Books and Go. We even have Alexa in our living rooms to ask the about the weather and Dash to replenish our food automatically. Potential pitfalls These technological advances will and already have made a difference to the way we shop. Amazon has helped to ramp up the pressure on mediocre retailing. Retail Darwinism is a constant vessel that will alter market dynamics and apply the natural laws of supply and demand. Despite the global domination it has so far achieved, the Amazon business is not as profitable as you might think. With net income and gross revenues going stratospheric in recent years, profit has remained relatively flat. Operational costs are high, and it spends $22bn (£17bn) a year on shipping alone. I know what you are thinking – why the violin? Because even the Bezos empire is looking over its shoulder. The increased scrutiny of national governments means that it will soon have to adapt. Not only will tax transparency come to the fore, but so will workers’ rights – an area where Amazon has previously been criticised. Amazon’s brand elasticity will be tested in the coming years – with the deluge of services on offer to consumers, when is enough enough? And when will Amazon be affected by newer entrants to the market, and who might replace it? Clicks to bricks Finally, and almost ironically, will it be able to operate out of physical space? EG reported last month that Amazon was looking to open more than 3,000 grocery stores in the USA by 2021. And it is working on a number of high street stores in the UK too. We also know that Amazon is in direct competition with the City of London to buy the 42-acre Barking Power Station site in east London, with plans for the country’s first four-storey distribution centre. On top of that, EG reported that Amazon was eyeing various stand-alone Homebase stores, so directly recycling space lost, arguably by Amazon’s invisible hand. The foray into bricks and mortar is well under way, but it is a completely different animal to online distribution and a move into A1 space could prove very costly if not executed correctly. Wrong tax, wrong place Even if an online sales tax is introduced in the Budget, we know that it won’t be enough to heal the ailments on the high street. Physical retailers need a business rates reprieve and revaluation, combined with a rebalancing of the scales to their online contemporaries. Similarly, targeting regions or towns that are performing the worst in isolation won’t help chains to survive – a rent reduction in 1% across a portfolio isn’t going to stave off the inevitable. What we should remember though is that online spend isn’t the enemy. The internet offers massive opportunities to physical retailers, not just the online powerhouses. But more pertinently, retailers should be focusing of what Amazon can’t do. The value of physical bricks and mortar is still extremely strong. People still want to shop, but the industry needs to accept that the high street needs fewer, better and more productive stores. With Amazon muscling in, they would do well to heed the warnings of what has befallen them. What’s your view? Share your thoughts on Twitter @estatesgazette Amazon: a force for good? To send feedback, e-mail james.child@egi.co.uk or tweet @JamesChildEG or @estatesgazette