Amazon’s arrival in Ireland will change the way we shop

Jeff Bezos has had an excellent pandemic. Since the global crisis began a year ago the Amazon.com founder and chief executive has seen his net worth jump by €59 billion to €156 billion.

His pile of money has grown by an average of €160 million a day or €1,850 every single second since the world started keeping its distance and washing its hands with the vigour of a heart surgeon heading into an operating theatre.

Based on such growth, Bezos earned around €15,000 in the time it has taken you to read this sentence.

It has been a pretty good year for his company too. Earlier this week Amazon announced record-breaking global revenues of $125.56 billion for the three months up to Christmas, and while it warned investors not to expect an equally bumper 2021, things are still looking pretty rosy.

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It is predicting a revenue bounce of 40 per cent when compared with last year, and it is now valued at $1.7 trillion.

Irish people did their bit. The number of transactions by Irish people on the platform trebled in the pre-Christmas period compared with 2019, according to Bank of Ireland.

And it is visited far more often by Irish consumers than any other ecommerce site, including eBay, DoneDeal and Ryanair.

If there is a very, very tiny fly in the online retailer’s ointment it might just be Brexit. When the UK left the EU shortly before midnight on New Year’s Eve, it suddenly became what is known in trade circles as a “third country”, which meant that many of the countless millions of products which travel to Ireland from its giant warehouses in Britain became liable for a raft of new taxes and charges.

They can add as much as 40 per cent to the cost of certain products, while making delivery delays inevitable and significantly increasing the amount of red tape companies like Amazon have to contend with.

While it seems unlikely Bezos has lost much sleep over the impact Brexit has been having on his customers in Cork or Clifden, his company has not grown to the size it is by missing a trick or ignoring obvious ways to boost the bottom line.

For months it has been working out ways to ensure the seamless flow of products to Ireland is as seamless as possible, which is why plans to bring an “Amazon FC” to Ireland are at an advanced stage. It is on the verge of signing a deal for a 650,000sq ft unit at the Mountpark logistics centre in Baldonnell.

Amazon FC is not, as it may sound, a football team but what insiders call the massive warehouses or “fulfilment centres” dotted around the world where products are picked and packaged by Amazon staff before being shipped to customers.

Once the deal is done it will allow Amazon to cut the UK from its Irish supply chain – avoiding Brexit-related delays, extra charges and red tape.

It may also allow more small Irish retailers who have struggled to move their businesses online to piggyback on the Amazon platform, list their stock on its marketplace and use its logistics system for deliveries and returns.

When contacted by The Irish Times this week to see if was happening, Amazon declined to comment. But comment or no comment, it is happening.

Purchases

An Post delivers much of Amazon’s stock to Ireland, and it is delighted by the development.

“This is good news for Irish Amazon customers who will get their purchases faster,” says Gilles Fernandez, the commercial director of An Post Commerce.

“By avoiding the Brexit pipeline Amazon can get their parcels to us in An Post faster, for immediate delivery to the customer.”

The closer a fulfilment centre is to your front door the faster your order gets to you, which why many fans of the online retailing giant here will rejoice at the news. And there are a lot of them.

Recent figures from the Central Bank suggest that the total online expenditure in Ireland amounted to €2.5 billion in December, a 21 per cent year-on-year increase. Around half of that spend left the country – with a large chunk, amounting to hundreds of millions of euro, going Amazon’s way.

But while faster deliveries, easier returns and greater choice are to be welcomed, the arrival of an amazon.ie is not without its dark sides.

The company began in a fabled garage outside Seattle in 1994, when the then 30-year-old former Wall Street trader started planning an online bookshop that he called his “regret minimisation framework” fearful he had already missed the dotcom boat.

His start could scarcely have been less glamorous. The first sale on Amazon was Douglas Hofstadter’s Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought.

Hofstadter may have been an expert in human thought but not even he could have had the mental agility to imagine just how much Amazon was about to change the world.

Early on Amazon was cute and fun, and every time someone in the fledgling company made a sale they would ring a celebratory bell

The bell was soon silenced as staff were too busy handling the orders that flooded in. They have kept flooding in, and Amazon has moved far beyond the books of its early days to become the world’s largest online retailer by some margin. It stocks hundreds of millions of products – with a finger in virtually every tech pie, including e-books, artificial intelligence, video and music streaming, and cloud computing.

New products

This week Bezos announced he was stepping down as chief executive. The head of Amazon Web Services, Andy Jassy, is to replace Bezos later this year. Sort of.

Bezos is not actually going anywhere, and will become executive chairman of Amazon. When announcing his redeployment in a memo to employees, he said he planned to focus on “new products and early initiatives” including the Day One Fund, the Bezos Earth Fund, The Washington Post and his private space company Blue Origin.

“If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive,” he said in his memo. “When you look at our financial results what you’re actually seeing are the long-run cumulative results of invention. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition.”

As Amazon has grown as a business so to has its reputation as a hard taskmaster for both its lowest-level employees and its senior executives. There have been multiple reports over many years of poorly paid warehouse staff being pushed incredibly hard. Undercover operations at its warehouses have painted a picture of staff whose every move is monitored, and who are denied toilet breaks or must take them under strict time constraints.

Added to the mix is Covid-19. Last year warehouse staff in New York highlighted the pressure they felt and their fears they would catch the virus that was rampant in the region. Some were fired for their troubles.

It was all too much for one of Amazon’s vice-presidents, Tim Bray, who resigned saying that the Covid-connected firings were evidence of the “vein of toxicity running through the company culture ... I choose neither to serve nor drink that poison.”

Edgar Morgenroth, professor of economics at Dublin City University’s business school, warns that while people may initially welcome the idea of more and faster access to the almost endless stream of products sold by Amazon, there is likely to be a price.

“As a consumer you might think it is fantastic if they move here. You will be able to get free delivery, and that is wonderful. But you have to look at their business model. They want to flatten all other retail.”

He says the Irish market is small but lucrative. “It is much easier to get a large market share in a small market, and Ireland is not a poor country.”

Morgenroth adds that while the Amazon marketplace may allow small sellers here take advantage of its huge logistical operation, when it comes to ordering and delivery it also has drawbacks.

“Amazon wants to have a monopoly and when they have that things get more expensive and either the consumer pays or that third-party seller pays, and ultimately this has a negative impact on prices.”

Footprint

Kenny’s Bookshop in Galway was one of the first shops in Ireland to recognise the potential – or threat – the internet posed. It set up its first online shop in 1994, when Bezos was still dithering over a name for his product, and has grown it assiduously ever since.

Tomas Kenny of the family business admits to being fearful of moves by Amazon to deepen its footprint in Ireland. “The biggest advantage they have is name recognition. They are the default choice for so many people who simply assume it will always be cheaper.”

He says that is not the case. He describes Amazon as “untouchable when it comes to price for the top 100 best-selling books in the UK at any given time – which is very different to the top selling books in Ireland – but beyond that they are expensive, and other sites including ourselves are cheaper when it comes to selling the books from 100 to 1,000”.

A key reason for that, he suggests, is a business model that sees Amazon sell the most popular books itself, while farming out the sale of other books to third-party sellers who are charged a 23 per cent fee for every book they sell. “Of course they are going to be able to sell books for less on their own websites if they don’t have to pay the 23 per cent,” Kenny says.

He is stoic about the disconnect between the reality and the perception. “It doesn’t matter what the reality actually is; people are going to default to Amazon.”

A recent US study suggests Kenny is right: 53 per cent of people go first to Amazon when searching for a product online.

Kenny suggests that when the company sets up a fulfilment centre “they will come in with all the bells and whistles and will attract a lot of attention”. But he expresses the fear that it will “kill an awful lot of retail”.

He says during the pandemic Irish people started shopping locally again. “But it is exactly those shops that will die if Amazon comes.”

Vicious circle

Kenny’s fears are echoed by Morgenroth. “Traditional retail has been in a downward spiral for years. That has been made worse by Covid-19. But a move by Amazon will set in motion a vicious circle, particularly in smaller towns. There is a real danger we will see the non-grocery sector disappear altogether.

“If you have no conventional retailers left what are you left with? Nothing except for pubs, betting shops, nail bars, hairdressers and maybe pharmacies. And the pharmacies will be next.”