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You’d think that the one tech-cum-retail company without an overdependence on China would be spared at a time when Wall Street is freaking out over a trade war with the country. But that doesn’t seem likely given President Trump’s obsession with Amazon AMZN. So, here we go-
Trump After Amazon Again
President Trump has been beating up a Twitter storm over Amazon’s monopolistic and anti-competitive trade practices, tax avoidance and the shipping fees it pays the U.S. postal service.
There’s a bit of truth in all this as well as other sides to the tale.
The President has said that Amazon has achieved scale and size on the back of taxes it didn’t pay the government, so it must be forced to pay up. It’s true that Amazon earlier didn’t collect and pay sales tax, which lowered the final prices of products on its platform, giving it a competitive edge against traditional retailers. As a result, many smaller retailers went out of business while larger ones saw a drop in business.
Amazon has made changes, however. The benefits of the omni-channel approach and its own size necessitated a physical presence, so today, based on its physical presence, it is a tax payer in every state. Not only that -- Amazon is now charging third-party sellers a fee for collecting sales tax on their behalf, so if the focus on taxing remote sellers increases in the future, it could actually improve Amazon’s revenue generation.
The President has also accused Amazon of paying a pittance to the U.S. Postal Service for package delivery. Here again, it’s true that Amazon pays USPS half of what it pays FedEx FDX or United Parcel Service UPS, but Amazon only uses the service for last mile delivery, which could be the reason for the lower rate. Amazon is also building its own logistics network and it isn’t clear if it will continue to use USPS, which has struggled to survive because of other reasons. In fact, Amazon’s business helped it generate revenue growth last year.
But Amazon founder Jeff Bezos also owns the Washington Post, which has riled Trump, perhaps because the Post has repeatedly targeted the President on governance and other issues. Trump has said that the newspaper operates as a lobbyist with a political agenda, which seems far-fetched at the outset. But when you think about it, Amazon is an utterly monopolistic business with millions of seller dependents across the country and satisfied buyers eating out of its hands. WaPo is potentially its mouthpiece with the power to trash who it likes. While there’s nothing illegal about all this, it’s enough to make you uncomfortable.
For reasons that are hard to fathom, because Amazon is doing everything right, its shareholders are getting jittery, sending the shares down-
Amazon in France: Amazon is shaking things up not only in the U.S. but also elsewhere. French food retailers have taken note of its Whole Foods acquisition and are prepping for a showdown. Leading hypermarket group Carrefour, which has operations all over the world has said that it will invest more than $2 billion a year to shore up its digital capabilities.
Privately held Leclerc, France’s biggest food retailer by market share, reportedly launched its own home delivery service this week after talks with Amazon fell through. And Casino Guichard Perrachon SA, which owns the upmarket grocery chain Monoprix, has signed up to sell its grocery items to Amazon Prime subscribers in Paris and its surrounding areas while it works to build its own platform (the company recently tied up with the UK grocer Ocado Group plc to license its order fulfillment technology).
Amazon in Brazil: The deal with Casino reportedly extends to Brazil where its Via Varejo SA unit, which includes Brazil's third-largest e-commerce operation and 900+ stores selling appliances and electronics, will now be managed by Amazon. Whether this constitutes an outright sale or not is unclear from news reports. But Casino has denied that the two are in partnership and also said that it put up for sale a controlling stake in Via Varejo in October 2016 and that the sale process is underway. Amazon has treaded cautiously in this market because of stiff competition between local players that dominate the ecommerce landscape.
Sales Tax Issue in Canada: Quebec, one of Canada’s most populous provinces, is considering making sales tax collection mandatory for goods sold to customers outside the province. The financial ministry of the state estimates that online sales of goods and services to companies outside the province is resulting in revenue losses of around C$270 million annually.
Moreover, foreign companies selling more than C$30K a year in taxable supplies of goods or services to Quebec consumers will be required to register for the provincial sales tax. U.S. companies like Amazon and Netflix NFLX will be impacted by the new law.
Amazon Housekeeping: Amazon Home Assistants are a new take on its old handymen service. This time round, the company is hiring its own cleaning people in the Seattle area rather than serving as an online marketplace for handymen and consumers to meet. It turns out that the trust factor is important when people grant access to their homes and Amazon can guarantee the quality of service and security only when it employs its own people. Plus this allows the company to sell into a $16 billion services market using its own brand.
Amazon has a Zacks Rank #3 (Hold). Stamps.com STMP is a better buy for ecommerce exposure as the company has a Zacks Rank #1 (Strong Buy). Or, take a look at the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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