Pfeffer, Jeffrey
Here's Why Amazon Is More Ruthless Than Walmart
Keywords: amazon; walmart; hachette amazon; business; low-wage workers
With no stores and an IT infrastructure that makes the cost of adding inventory close
to zero, Amazon doesn't have to care about its suppliers
The recent dust-up between Amazon and publisher Hachette reminds us that retail is
a brutal business--tough on employees, really hard on suppliers. Walmart, the largest
physical retailer, and Amazon, the largest retailer online, illustrate the pain produced
in the effort to make consumer's prices as low as possible.
Consider the plight of those working in retail. According to the Bureau of Labor
Statistics, retail salespeople and cashiers were the two largest occupations in the U.S.
in 2013, together employing almost 8 million people. These are low-paid occupations
under the best of circumstances. While the median hourly wage for all employed
people was $16.87, cashiers made just 58% of the median, and sales clerks just 60%.
Numerous news articles document the tough working conditions for both Amazon
and Walmart employees. Both employers face suits for not paying employees for all
of their required time at work, including time waiting to go through a security check
at Amazon's warehouses to guard against shoplifting. Amazon's German employees
have been striking over wages since last year. A homeless shelter in Jeffersonville,
Indiana, has had between two and six Amazon.com distribution center employees
living there at all times. Many articles describe the harsh work culture at Amazon,
some calling it a " soul-crushing experience."
Walmart is scarcely better. Fifteen percent of Walmart's Ohio employees are on food
stamps. Employees receive $2.66 billion in government assistance annually. A study
by the University of California, Berkeley's Center for Labor Research and Education
noted that, even after statistically controlling for differences in geography, "Wal-Mart
workers earn an estimated…14.5 percent less than workers in large retail" and that
"several recent studies have found that the entry of Wal-Mart into a county reduces
both average and aggregate earnings of retail workers and reduces the share of retail
workers with health coverage on the job."
But it's Amazon's relationship with its suppliers that makes the company worse than
Walmart. There's no doubt that Walmart pressures suppliers for the lowest possible
price. But once the products are in the stores, both Walmart and the chosen
suppliers' interests are well-aligned--to sell as much as possible of the stocked items.
It costs money to build stores and ship product to them. More importantly, choices
are necessarily limited in a physical store. So Walmart wants to move as much of the
merchandise it decides to sell as possible. Having chosen a supplier and negotiated a
deal, there is at least some degree of temporary commitment by Walmart to the
vendor.
By contrast, Amazon--with no stores and an IT infrastructure that makes the cost of
adding items to sell close to zero--doesn't care what you buy, or even which of their
online partners you use, as long as you buy the product through Amazon. Take books,
the focus of the recent conflict. Walmart stocks a relatively small selection, so it
wants to move the specific books it offers. Walmart's interests line up quite nicely
with the authors and publishers it promotes. Amazon stocks everything (except
apparently now books published by Hachette), so it doesn't care what particular
book you buy. Simply put, Amazon has less incentive to make any specific supplier
successful. To Walmart, for books or anything else, selling a million units of one item
is great; selling one unit of a million items is impossible in its physical stores. For
Amazon, who cares? That's why relationships with suppliers, always contentious, will
be particularly problematic at Amazon, especially when Amazon controls so much of
the retail market share.
Some believe that low-paid, overworked, unhappy employees are the new model in
an Internet age of offshoring, outsourcing and computer-monitored work. It's quite
possible that online retailing is also creating a new model of retailer-supplier
relationships, with much less sense of partnership and shared fate than in the past. If
so, Amazon's fight with Hachette presages trouble for lots of suppliers, not just book
publishers, in the very near future--at least if Amazon's market dominance persists.