FTC vs Amazon, The Retail Facts
If you missed Microsoft: Move Fast And Build Things, here is a LINK
The FTC case against Amazon is predicated on –
1) Amazon has a retail monopoly.
2) Amazon is using its monopoly status to further squeeze suppliers.
3) Amazon is using its monopoly status to raise prices.
Amazon is bad for consumers.
Is Amazon a monopoly?
The Federal Trade Commission (FTC) has labeled Amazon as a monopoly, attributing it to a 60% share of the online market. However, it’s important to consider that the online market is just a fraction of the entire retail ecosystem. Let’s look at the numbers. In 2022, the total retail sales in the U.S., excluding gas and auto, amounted to approximately $5.8 trillion. My calculations suggest that Amazon’s U.S. gross merchandise value (GMV) was around $350 billion in the same year. This implies that Amazon’s share was less than 10% of the total market. As many are aware, the retail industry is fiercely competitive, offering consumers a plethora of choices and tools to hunt for the best deals. While it’s undeniable that Amazon holds significant market power in certain retail segments, labeling it as a monopoly seems to be an overstatement.
Prime Creates Customer Lock-in
When Amazon unveiled Prime in 2005, the company’s stock plummeted by 30% in the following months. The implementation of Prime required substantial capital investments and led to significant losses. Over time, Amazon has poured approximately $200 billion into its physical infrastructure to achieve same-day shipping. In this context, the FTC’s assertion holds true. Prime has indeed created a strong customer retention effect. Furthermore, Prime provides immense value and is unquestionably beneficial for consumers.
FTC is Comparing Online vs. Offline Competitors To Prove Monopoly Status
Amazon is primarily an online business. Target and Walmart are primarily offline businesses. The FTC claim is an apples-to-oranges comparison.
Here are the actual sales comparisons for 2022
1) Walmart US - $420 B (does not include Sam’s Club)
2) Amazon US GMV - ~$350 B
3) Costco US - $165 B
4) Target - $100 B
Indeed, while Amazon’s retail share is substantial, it doesn’t quite reach the threshold of a monopoly. The counter-argument posits that Amazon’s meteoric rise over the past two decades is primarily due to its ability to deliver more value to consumers than any of its competitors. This value creation has been a key factor in its success and growth.
Private Label
The strategy of private labeling is a common practice among all retailers to increase the proportion of their own products, which typically yields higher gross margins. Every retailer controls product placement and naturally gives their own brands preferential treatment. This is a long-standing practice in the retail industry. For instance, Costco’s private label brand, Kirkland’s, accounts for 40% of total sales and receives similar preferential treatment in Costco stores. Most retailers have a 20-30% private label share, effectively replacing a third of other products with their own. If Amazon is considered guilty of this practice, then the entire retail ecosystem would be equally culpable.
Seller Squeeze
Amazon has undeniably established customer loyalty with Prime, achieved by offering value and convenience. This puts a lot of pressure on sellers to stay on the Amazon platform. While Amazon’s strategy to commoditize sellers may be challenging for the seller community, it ultimately benefits the consumer. In the end, Amazon relies on a robust third-party seller ecosystem to offer a wide selection of products and offset its fixed logistics costs. It is in Amazon’s best long-term interest to maintain and nurture its entire ecosystem.
While I’m not a legal expert and can’t predict the legal outcome of this case, a review of the case and verification of the facts suggest that the FTC’s case may be tenuous and potentially based on a misrepresentation of facts.
What do you think?