Amazon’s low profit margins may seem a little extreme to Wall Street, but they are an important ingredient in the company’s success. As my colleague Jason Del Rey explains, this is because Amazon plows most of its earnings back into the business so it can continue to grow. Small Businesses Face Cashflow Disruption.
Investor analyst Dan Romanoff argues that the move is likely to allow Amazon to accrue interest on the funds held, but this isn’t nearly enough to offset the disruption to small businesses’ cashflow.
Amazon Holds Sale Proceeds for a Week After Deliveries
Amazon is holding sale proceeds for a week after delivery to its customers. This has caused thousands of marketplace sellers to face cashflow disruptions and worries that they may have to close their businesses.
Unlike merchants who sell on their own website or in a physical storefront, Amazon is a customer-centric platform. This means it has to hold a portion of payments for refunds and chargebacks. Most sellers receive payouts (or disbursements) every two weeks.
But the company recently changed this payment schedule to hold funds for up to 14 days. The change has affected 225,000 small- and medium-sized businesses selling on Amazon’s European marketplace, including many in the UK. The company has said that it is trying to standardize reserve policies across Europe and ensure that sellers have enough funds for product returns and other financial obligations. The company is also reportedly accruing interest on the held funds, although this does not offset the impact on small business’s cashflow.
It’s Not the First Time Amazon Has Faced Backlash
But as one of the richest companies in the world, it has a responsibility to use its enormous wealth responsibly.
Bezos’ recent space walk, paid for by his private company Blue Origin, is a good example. When he returned to Earth, he thanked “everyone at Amazon” for the “wealth that made this possible.”
But not everyone is happy with how much money Bezos makes. Several congressional Democrats, including Representative Nydia Velazquez of New York, have called for him to pay his fair share in taxes.
Meanwhile, the company has angered publishers and brands by breaking embargos on Margaret Atwood’s new novel, forging product reviews, and even selling counterfeit Birkenstocks. The more facets of the economy Amazon touches, the more it can screw up.
Amazon Is Cornering the Online Market
As a result of Amazon’s massive marketplace platform, the company is increasingly dominating B2B purchases. That market is a surprisingly robust sector that includes maintenance and repair items such as electrical components, plumbing supplies and tools.
The online retail giant is also a significant player in the cloud computing and digital streaming markets, as well as warehouse and aviation robotics. In fact, its footprint is so vast that critics, overseas regulators and Washington politicians have raised questions about whether the tech giant is becoming an unchecked power that could eventually monopolize multiple industries.
The company has also been able to gain a foothold in the B2B market with its AmazonSupply business, which provides the company with non-public business data about third-party sellers on its marketplace platform. This allows Amazon to offer better pricing for customers as it is able to compare prices and fulfill customer orders with the help of its warehouse workers. This approach has already been a factor in pushing some sellers out of the Amazon marketplace.
It’s Time for Policymakers to Check Amazon’s Outsized Power
In New York, we saw the power of grassroots action force an out-of-control corporate bully to back down. Now we must make sure that this is not the end of our resistance to Amazon’s monopolistic ambitions.
This change will have a profound impact on small business cashflow.
They have amassed tremendous, outsized power that is suppressing competition and harming consumers.
It is time for policymakers to step in needs read more hear.
