Read about Amazon’s effect on local businesses

Amazon’s British Empire – High street retailers are up in arms about the lockdown advantage gifted to the tech giant this Christmas

Sam Chambers

Sunday November 08 2020, 12.01am, The Sunday Times

After a miserable year, Steve Cochrane was getting into the festive spirit. Nine days ago, his upmarket department store Psyche — a mainstay of Middlesbrough’s town centre for 38 years — was arranging delivery of 14 projectors for a flashy window display, and had received perfume gift sets worth £48,000 by the likes of Versace and Dsquared2.

Those plans were left in tatters by news of England’s second lockdown. The window display has been scrapped, staff furloughed and Christmas stock worth £5m is gathering dust. “We were just starting to get back a bit of confidence,” said Cochrane, 61, after his staff had spent hours mothballing the four-storey shop. “I’ve been waking up in the middle of the night, furious about how stupid this is. This lockdown will be so much more damaging than the last one, and it’s playing massively into the hands of Amazon and the other e-commerce retailers, which pay little rent or business rates.”

The month-long closure of non-essential retailers at the most lucrative time of year is opening up a huge divide between the industry’s winners and losers. High street bosses are apoplectic that Amazon and the supermarkets, which have also enjoyed a 12-month business rates holiday, will cash in at their expense.

“Why should supermarkets be allowed to sell clothes when JD Sports or Primark can’t?” said JD’s executive chairman, Peter Cowgill. “If I stick 10 cans of baked beans at the front door and 40 bottles of Coke behind the till, can I stay open? The playing field is totally uneven.”

The sector is hurting. Last week, Marks & Spencer, which is cutting 7,000 jobs, posted an £87.6m half-year pre-tax loss — the first in its 94 years as a public company. John Lewis is slashing 1,500 head-office jobs. Even Sainsbury’s, pocketing almost £500m in rates relief, is cutting up to 3,500 jobs as it responds to a surge in online sales by shutting 420 Argos stores.

Meanwhile, Amazon is soaring. Lockdowns helped its third-quarter profits triple to $6.3bn (£4.8bn) on the back of a 37% rise in global sales, which came in at $96.1bn. The huge financial rewards have provoked open hostility in France, where Anne Hidalgo, mayor of Paris, urged Parisians not to buy from the company, arguing that it was “the death of our bookstores and our neighbourhood life”.

With an estimated 19 million UK subscribers to its Prime loyalty scheme, which offers same-day delivery and access to its streaming video and music platforms for £7.99 a month, Amazon is set to reap lockdown benefits here, too.

“Amazon has had Christmas handed to it on a silver platter,” said Natalie Berg, founder of consultancy NBK Retail. “It’s the hands-down winner of the pandemic.”

When Jeff Bezos quit his job at a hedge fund to start selling books from the garage of his Washington home in 1994, nobody could have foreseen that the venture would metamorphose into a corporate titan of retailing, cloud computing, home entertainment and logistics.

The business landed quietly in the UK in 1998, distributing books from a warehouse just off the M1 near Milton Keynes, before branching out into CDs, DVDs, toys and computer games. Backed by investors willing to overlook short-term profitability in expectation of long-term gains, Bezos, now 56, brought the old-fashioned retail principles of low prices and great service into the digital age, helping consign fading chains such as Toys ‘R’ Us and Woolworths to the history books.

High street bosses both admire and resent Amazon, which in 2018 paid just £63.4m in UK business rates — the tax levied on the value of commercial property. Last year, Sainsbury’s paid £567m.

The fresh lockdown is intensifying the clamour for the business rates holiday to be continued beyond its scheduled expiry in April. Beyond that, high street retailers are calling for the system to be reformed entirely, in the expectation that many of this year’s e-commerce converts will not return to the shops.

Amazon, whose European headquarters is in Luxembourg, paid £293m in UK taxes last year on sales of $17.5bn.

“Amazon pays very little towards the upkeep of the roads it depends on to deliver parcels,” said Shore Capital analyst Clive Black. “That doesn’t seem right.”

Amazon said: “We are investing heavily in creating jobs and infrastructure across the UK — more than £23bn since 2010. The UK has now become one of Amazon’s largest global hubs for talent and this year we announced plans to create 10,000 new jobs in the country by the end of 2020, taking our total workforce to more than 40,000.”

To try to make the tech giants pay their fair share, the Treasury introduced a digital services tax this year, a 2% fee on revenues derived from British users, only to stop short of levying it on retail sales for fear of disadvantaging high street chains with online platforms. Having escaped the tax in its retail business, Amazon neutered the impact on its Marketplace by passing it on to third-party sellers via higher fees. Its 28 UK warehouses cover about 18.5 million square feet, according to UK real estate adviser DTRE.

Total online sales from all businesses in the UK, which were flatlining before the pandemic, surged more than 50% during the first lockdown. The growth rate has stayed above 40% ever since, according to online retail association IMRG. This surge has seen couriers DPD, Hermes and Yodel hire almost 20,000 people between them, while Royal Mail is recruiting 33,000 temporary workers in anticipation of a deluge of online Christmas orders. The price of the average used delivery van has risen by 20% to £15,482, according to Auto Trader.

After operating at peak volumes for months, there are concerns, though, that distribution networks will struggle to cope with huge seasonal demand. Worker shortages at Felixstowe, which handles about 40% of all container shipments into the UK, are already making it hard for retailers to get goods through the port. Some “last mile” couriers have told high street chains that they have no additional capacity over the peak trading period.

To smooth demand, Amazon began offering Black Friday discounts, which traditionally begin in late November, almost a fortnight ago. It is also hiring more than 20,000 seasonal workers. The company has steadily taken greater control over its logistics operations, assembling a fleet of about 70 cargo planes, setting up Flex — a gig-economy operation in which anyone with a car and a driving licence can deliver packages — and delivering goods for sellers on its Marketplace platform.

“Amazon will be able to ride through the peak more comfortably than high street retailers, who will struggle to drive sales online after Black Friday because of capacity constraints,” said Dino Rocos, a former operations director at John Lewis who now runs the Future Retail Logistics consultancy. “Unfortunately, it’s going to be a bit of a bloodbath.”

As Amazon races to satisfy unprecedented demand, its high street rivals, which make as much as three-quarters of their annual profits in the so-called golden quarter, are fretting over how to shift Christmas stock that will have little value next year. By the end of 2020, the Centre for Retail Research forecasts that 36,000 shops will have closed in two years.

Just as the high street is being hollowed out, Amazon is moving in. It plans to open dozens of checkout-free convenience stores, and is in talks to open bookstores and “4-star” shops selling anything from speakers to saucepans, so long as they are rated four stars or higher on its website.

The grim irony of Amazon pitching up on the high street will not be lost on Britain’s reeling retailers.

Leave a Reply