Tougher times for Amazon as rivals get smart

With traditional retailers raising their game, the online giant has seen a slowdown in UK growth

Amazon founder Jeff Bezos does not care about profits. He is notorious for running the online giant at close to break-even margins.

Instead, hard-driving  Mr Bezos is obsessed by sales as he aims to grab market share in his quest to make Amazon the biggest retailer in the world. So he and his senior lieutenants pore over turnover figures on a weekly basis.

“This is what, for employees, is so absolutely scary and impressive about the executive team,” Dave Cotter, a former Amazon executive, told Mr Bezos’s biographer, Brad Stone, author of The Everything Store, last year. “They force you to look at the numbers and answer every question about why specific things happened.”

So as Amazon marks its 20th anniversary this year, Mr Bezos is unlikely to have been thrilled with the company’s performance in the UK, where sales growth has been slowing. Turnover in Britain rose only 12.6 per cent to $7.29 bn (£4.5bn) last year, according to accounts filed by the US parent company, while the group as a whole increased sales by 24 per cent to $74.5bn.

Amazon’s little helpers: Inside the retail giant's huge distribution centre ahead of Cyber Monday - the day Britons buy Christmas presents online  

Revenues rose $800m on a year earlier in Britain, Amazon’s fourth-biggest market after America, Germany and Japan. That compares with a rise of $1bn to $6.48bn in 2012 and by $1.4 bn to $5.35bn in 2011. Taking into account changes to the dollar-sterling exchange rate, UK growth is estimated at 14 per cent last year on a like-for-like basis, down from 22 per cent in 2012 and 31 per cent in 2011.

Amazon declined to comment. But analysts said it has been feeling the squeeze in Britain for a number of reasons:

First, traditional players such as John Lewis and Dixons raised their game – particularly with “click and collect” services. Independent retail analyst Nick Bubb cites John Lewis’s use of its sister food chain, Waitrose, as a “physical” collection point for web purchases as an example of how established chains are finally starting to act smarter. Amazon lacks its own network of physical stores, although it has begun offering a click-and-collect service by opening “lockers” in selected sites.

Amazon's fulfilment centre in Peterborough gearing up for Black Friday and Cyber Monday Amazon's fulfilment centre in Peterborough gearing up for Black Friday and Cyber Monday  

A second problem is that competition is hotting up in electricals – an important market for the maker of the Kindle e-reader. Dixons’ decision to match Amazon on price shows the US giant is no longer finding it so easy to undercut rivals, says Mr Bubb.

A third issue is changing habits when it comes to  media consumption.

“What has been a drag is the books and entertainment market is pretty mature,” adds Mr Bubb, who reckons falling CD sales and other traditional entertainment products – once at the heart of Amazon’s business – have pushed down on revenues. This is not just a trend confined to the UK. Amazon’s international sales of “media” products rose just 1 per cent last year.

One unknown is whether the corporate tax-avoidance row that blew up in autumn 2012 has had an impact on Amazon’s reputation. There is anecdotal evidence that some ethically minded Britons stopped using Amazon after the Commons Public Accounts Committee blasted the way sales are processed in Luxembourg to avoid UK tax, even though the web giant has eight distribution centres in Britain, employing up to 8,000 permanent staff and 15,000 temporary “associates” at Christmas. The latest UK accounts show it paid just £2.4m in corporation tax in Britain in 2012.

Amazon’s vast distribution centre in Swansea Amazon’s vast distribution centre in Swansea  

However, Mr Bubb believes that most of Amazon’s critics just “hold their nose” and continue shopping because it is reliable and competitively priced – just as they keep searching on Google and connecting with friends on Facebook despite similar accusations. Tax is only paid on profits and Mr Bezos’s tactic of operating Amazon at ultra-low margins – it made a profit of just $274m globally last year – means it would only ever pay a small amount of tax.

A fascinating bigger question is whether Amazon has peaked. Fourth-quarter results disappointed Wall Street analysts and there is some suggestion that Mr Bezos, 50, has his eye on other things, after buying the Washington Post and investing in philanthropic ventures through his Bezos Expeditions arm.

Amazon aims for supply and command as it moves into industrial supplies

But Mr Stone’s book suggests Mr Bezos remains focused on making Amazon a $200bn-a-year company. Ecommerce remains fast-growing with analyst firm eMarketer estimating the global market will increase 20 per cent this year to reach $1.5 trn.

Amazon is pushing into fresh food on the West Coast of America (though not yet in Britain) and has branched out into clothes and men’s grooming products in Britain. Then there has been the launch of Sunday deliveries. Same-day delivery is the next big target – hence Mr Bezos’s claim that Amazon is planning to use remote-controlled drones. Beyond retail, there is Amazon Web Services, a huge business that provides cloud-computing and storage services for countless companies.

The problem for Amazon, in Mr Bubb’s words, is that “mathematically, arithmetically, it gets harder to keep growing”.

Retail challenges: growing competition

Amazon may be the biggest online retailer but it faces growing competition from established British supermarkets, even though the US giant isn’t involved in fresh food – yet.

In electricals, Dixons and John Lewis have both raised their game. Meanwhile, Tesco’s successful launch of its own-brand, low-cost Hudl tablet and the expansion of its TV-and-film streaming service Blinkbox are aimed at Amazon’s Kindle Fire tablet and LoveFilm movie service.

Observers doubt Amazon will enter groceries in the UK because it is ultra-competitive. However, other British grocers could follow Tesco’s lead by entering Amazon’s home turf of electricals and media. Online retailer Ocado, for example, could become a serious force, after confounding stock-market doubters in a tie-up with Morrisons.

The Holy Grail in retail is now seen as “multichannel”, combining a strong online and mobile presence with a network of physical stores.

scienceExcitement from alien hunters at 'evidence' of extraterrestrial life
Life and Style
Customers can get their caffeine fix on the move
food + drink
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Life and Style
techCould new invention save millions in healthcare bills?
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Jermain Defoe got loads of custard
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Analyst - Banking - London - £550 - £650

£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...

Data Centre Engineer - Linux, Redhat, Solaris, SAN, Puppet

£55000 per annum: Harrington Starr: A financial software vendor at the forefro...

.NET Developer

£600 per day: Harrington Starr: .NET Developer C#, WPF,BLL, MSMQ, SQL, GIT, SQ...

Data Centre Engineer - Linux / Redhat / Solaris / Puppet / SAN

£65000 per annum: Harrington Starr: A financial software vendor at the forefro...

Day In a Page

Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape