Covid-19 was a better opportunity, but it also exposed Amazon’s “deadly” weaknesses

In the summer of 1995, Jeff Bezos was a skinny guy working as a pack of paperback books on boxes. Today, 25 years later, he may have become one of the most important capitalist tycoons of the 20th century. Portrait of Jeff Bezos also becomes different: a muscular man divorced considers talent sponsoring trips to space and the newspaper is “for fun”, who was praised by both investment legend Warren Buffett and repeatedly criticized by President Donald Trump.

His company – Amazon – is no longer just a book sales company but has become a technology giant worth up to $ 1,300 billion that is admired by consumers, investors and rivals. resisted and was hated by politicians. And now the online transformation wave after the Covid-19 pandemic is even more evident in the importance of Amazon to everyday life in the US and Europe as the company plays an important role in all array from e-commerce, logistics to cloud computing.

In response to the pandemic, Bezos has returned to closely managing Amazon’s daily operations. At first glance, it can be said that Covid-19 offers no better opportunity for Amazon, but the world’s fourth-largest company with market capitalization is facing many problems: the public demands a lot of responsibility from Amazon. social responsibility, rising financial costs and emerging competitors.

The digital wave born from Covid-19 began when consumers rushed to stock up on toilet paper and pasta. In the first quarter, Amazon’s revenue increased by 26% over the same period last year. When demand stimulus checks reached US households in mid-April, the wave of shopping appeared in many other items. Rival eBay and Costco also said their online business accelerated in May. To meet the surging demand, Bezos checks inventory every day. Amazon has recruited an additional 175,000 employees, equipping them with 34 million pairs of gloves and hiring 12 new cargo planes, bringing the total number of aircraft in the fleet to 82. Enabling e-commerce platform The boom is cloud computing infrastructure and powerful payment system. Cloud revenue also increased by 33% in the first quarter.

The question is whether this wave will settle soon. Stores are reopening, though measures to keep epidemic hygiene in place. There have been some positive signs that there will be long-term changes in favor of Amazon. A new group of customers interested in shopping online has appeared. There are many Americans over the age of 60 starting to set up payment accounts online. Many traditional physical stores were heavily destroyed by Covid-19, with a series of names like J Crew and Neiman Marcus declaring bankruptcy. Last year, stocks of warehouse operators (which are healthy living thanks to e-commerce) grew 48% higher than those of shopping malls.

All of this seems to fit the head of the things Bezos sends to shareholders every year. Accordingly, he always asserted that Amazon is in a period of strong spending money to gain market share and “explore new potential lands”. From books, Amazon jumped to e-commerce, then expanded to cloud computing and logistics to third-party retailers. Consumers loyal to Amazon for benefits like Prime membership packages or Alexa voice assistant. In this respect, the new digital wave has further strengthened the rise of Amazon. That is also the way of seeing Wall Street, where Amazon shares just hit the highest peak of all time on 17/6.

But Bezos also faces many conundrums. The first is the concern that Amazon, like Google in search, is gradually turning into a monopoly corporation. Last year, Amazon accounted for 40% of e-commerce market share and 6% of total retail sales in the US. There is very little evidence that Amazon makes jobs disappear. Studies on the “Amazon effect” show that the new jobs that Amazon creates in warehouses or delivery stages help offset lost jobs in physical stores, and a minimum wage of $ 15. Amazon’s hourly rate is well above the industry average. But Amazon’s strategy has made big changes in the labor market.

There are also a number of outbreaks at Amazon warehouses that have raised criticism about working conditions. And there’s also some criticism of Amazon’s business model that could lead to a conflict of interest. For example, does its e-commerce platform treat third-party sellers equally as with products made by Amazon itself? Congress and the EU are investigating this issue. Is it safe for other companies to provide sensitive data to AWS (Amazon’s cloud array)?

The second biggest problem lies in Amazon’s financial health. Bezos is constantly expanding the company from industry to industry, making Amazon today have assets of up to $ 104 billion, nearly equal to $ 119 billion of old rival Walmart. As a result, the profit if not counting the cloud segment is quite low and the pandemic makes the surplus profit of e-commerce segment even thinner. Bezos claims that Amazon can make money from its huge data source, sell ads and subscribers. Investors still believe it. But the low margin of e-commerce will make it harder for Amazon to isolate the cloud.

Bezos’ last concern is the new competitors. Bezos has always said that he observes consumers rather than competitors, but recently he must have paid attention to how competitors take advantage of the pandemic. Walmart, Target and Costco’s online sales doubled or more in April. Independent digital companies are also doing well. Combining Shopify, Netflix and UPS shares into one group, this group has performed better than Amazon stock since the beginning of the year. In markets outside the US, Amazon is also losing to MercadoLibre in Latin America, Jio in India and Shopee in Southeast Asia. In China, the rulers are Alibaba, JD.com and some brand new names like Pinduoduo.

The most admired companies in the world need to solve tough problems. If Bezos raises wages for workers to please populist local politicians, Amazon will lose its low-cost advantage. If you divide the cloud segment to please your managers, the financial situation will be weaker. And if Amazon raises prices to satisfy its shareholders, the market share will fall into the hands of competitors. 25 years have passed, and Bezos’ vision of a world in which all human activities from shopping to watching and reading takes place online has become a reality. But running Amazon is not easier, if not harder.

Refer to The Economist