Amazon is worth $1 trillion. But can we shop there with a clear conscience? Part One.

September 5, 2018
Future of Work
Photo credit : Amazon

I placed my first Amazon order in 1999, and I can still remember it. I was on the sofa in my lounge in East London. It was a Friday evening. The beeps and tones of my 56k modem fell silent as the connection completed and the Amazon site opened. An hour later, I had spent more than £60, and I marvelled at how I’d spent so much money without leaving the house. It felt special, magical… even naughty – and I knew that something fundamental had changed forever.

In less than 25 years, Amazon has changed the face of retailing worldwide. From those simple beginnings as an online bookstore, the company has grown to revenues of $208 billion and is served by a staff of more than half a million people.

Yesterday Amazon became the second company, following Apple, to be worth more than $1 trillion.

After making losses for many years, the firm is now turning a profit. The business made a record $2.5bn in the second quarter of this year – 12 times up from the same period in 2017. Founder Jeff Bezos, who owns 16% of the company’s stock, is the wealthiest man in the world, with a reported net worth of $150 billion.

Still beaten in total sales by brick-and-mortar retailer Walmart who had $481 billion revenues in 2017, Amazon dominates the fast-growing online retail world. Research by Salmon shows that the company controls over half of all American online spend and nearly 40% of global online spend. Those numbers are phenomenal. Just let them sit with you for a second.

Top US companies ranked by online retail ecommerce sales

As well as the shopping site we all know, Amazon, owns Audible.com, Goodreads.com, Whole Foods Market, and Amazon Web Services (AWS). AWS is the standout leader in cloud hosting utilised by services we use every day, including Netflix and Airbnb. It’s is a tank of a business that today makes much of group profits. Q1 2018 results showed that they controlled 33 % of the cloud infrastructure market — way ahead of rivals Microsoft at 13% and Google at 6%. Since the launch of the Amazon Echo/Alexa product range, they’ve also dominated the fledgeling home assistant market with over 70 per cent market share. The company claims that sales of its voice assistants are running in the tens of millions.

On many fronts, Amazon is a new-economy monopoly. But how are they are using that power – who will it benefit and at what cost does it come?

Amazon has achieved so much because of a ruthless and unparalleled focus on the customer.

They understand what consumers want: the broadest possible range, the lowest possible prices, and the fastest free delivery. The American Customer Satisfaction Index has ranked Amazon number one eight years in a row. The UK’s customer satisfaction index has ranked Amazon UK number one six years in a row.

Has this focus on the customer come at a high cost to the people that work there? I wanted to know more and am exploring this in this two-part feature on Amazon. I simply want to answer the question, “Can we shop at Amazon with a clear conscience?”

Now, as a consumer, I love Amazon, and I shop there daily. Let’s start with an honest confession about that.

Using the Amazon Order History Reporter I found that I’d spent £16,115 at Amazon last year across 426 orders. That’s more than one order every single day, and it’s 40% up on my previous year.

My only saving grace is I use the same account for work purchases. So let’s be generous and say that at least half of those are not personal. £8,000 is still a phenomenal amount of my expenditure all going to one retailer. It shows just how easy Amazon has made online shopping.

Amazon shoppers are exceptionally loyal

Global data shows that others are like me. Amazon has a way of converting people to become incredibly loyal, regular shoppers. Over 100 million people worldwide subscribe to the Amazon Prime delivery service, which gives free shipping and Netflix style tv programming in exchange for GBP £79 or USD $119. On average, Amazon Prime members spend USD $1,300 per year with the retailer. Together, in 2017, they ordered 5 billion items.

Customer confidence in the proposition is so strong that over half of consumers start their product searches on the Amazon website itself. That means they bypass search engines, such as Google or Bing, that could find them a better deal elsewhere. That’s how forcibly Amazon convinces its users that they will have the range, price, and convenience nailed. Half of the shoppers simply don’t bother to look elsewhere. When someone commits to Amazon, it seems he or she really commits.

It’s ironic that retailers have been trying, with only marginal success, to create customer loyalty for decades through elaborate points and reward programmes. Amazon has created repeat purchasing and customer loyalty at an unprecedented level by ruthlessly executing on the basics of value, choice and delivery speed.

The effect of this dominance on some categories of goods is significant. The “State of the Amazon Era” report found that Amazon monopolises six entire categories of online shopping, achieving over 80% market share in each of them.

Amazon dominates 8 online retail categories in the USA - Data from Jumpshot

Amazon is vast, dominant, and, in some categories, running a monopoly. So how is it behaving? Is everyone a winner in Amazon’s game of giving the customers what they want?

Despite increasing profits, the company’s tax affairs have long been under attack. Amazon paid only GBP £4.6 million in UK corporation tax in 2017 despite UK revenues of GBP £11.4 billion for the year. Naturally, Amazon reminds everyone that it pays all taxes legally due in each country. However, traditional retailers are quick to call for change. The principal taxes for high street businesses are business rates. They’re based on the amount of square footage of retail space and the quality of the area in which the store is located. Those taxes must be paid regardless of the size (or lack) of profits. Amazon can minimise its tax bill by legally offsetting investments in the future against profits. Many people think this gives a very uneven playing field.

So, while this feature could easily focus on tax affairs, the resulting decimation of the high street, or the plight of small businesses, I want to focus on one particular aspect of Amazon’s business: the warehouse worker.

As we move from the high street to online shopping, jobs are moving by the tens of thousands from the front line—in retail stores—to the warehouse. These jobs are moving out of sight. I’m worried that “out of sight” means “out of mind“.

If shop workers are overworked, stressed, and exhausted, then customer service is negatively affected. When people can see the pain on workers’ faces and hear the tiredness in their voices, it looks bad for the store. But warehouse operators cannot be seen. If they are overworked, who will know? The orange smiling face on the Amazon website keeps going no matter what is going on in the back room.

A vast warehouse and logistics operation

Amazon runs 161 warehouses in North America, 16 in the UK, and another 70 across the rest of the world. At the end of 2017, that was 254 million square feet of warehouse space.

The company employs 560,000 people worldwide. Half of them plus another 100,000 robots work in fulfilment centres.

The move to online shopping has moved hundreds of thousands of jobs from the retail front line, where customers can see them to the warehouse back office where they are invisible. However, dozens of undercover reports and exposes have told detailed stories of the brutal working conditions Amazon imposes on delivering for its customers.

From all around the world, stories keep coming about brutally hard and inhuman conditions at Amazon’s warehouses. The company debuffs these, saying that people love working at Amazon because of competitive pay and benefits.

Amazon warehouse workers work a standard 10-hour shift with one 30 minute, unpaid break and two 15 minute paid breaks. However, workers complain that by the time they have got through security checks and to the warehouse gates, a 30-minute break is really 15 minutes—barely enough time to grab a sandwich. Workers also report that a 15-minute break includes the time walking to and from the restroom, so it’s really at best ten minutes.

Amazon warehouses are huge – some up to a million square feet. Many workers spend all day on their feet, and some workers can walk over ten miles a day.

When on shift, workers have punishing targets (called “making rate“), and their performance is tracked to an unprecedented level. Workers talk of peeing in bottles to avoid the downtime of a ten minute or quarter-mile walk to the bathroom.

The Internet is filled with dozens of personal stories of what workers have to do to hit Amazon targets and cope with the wages. Some staff live out of their car in the warehouse parking lot to avoid travel time and costs. Other workers at the Dunfermline site in Scotland have resorted to living in tents on the edge of the site to save money.

In Amazon’s ABE2 warehouse in Pennsylvania, workers were forced to work in 102-degree heat, which caused 15 staff to collapse back in 2001. An emergency room doctor at a local hospital saw enough Amazon employees suffering from heat-related injuries to call the Occupational Safety and Health Administration and report “an unsafe environment.” A report from the OHSA later said that the warehouse was run in a manner “that had the potential to adversely impact” employees’ safety and health.

I could go on; there are dozens if not hundreds of stories like this. But I don’t just want to re-report old news even if it does bring it to a new audience. I want to find out for myself what people who’ve actually been there think.

Over the next two weeks, I will be talking to several ex-Amazon staff, all of whom have worked in the company’s distribution centres. Some of them are line workers, and some are managers. I’ll be asking them for their first-hand experiences and recollections of their time. I will also visit Amazon’s warehouse in Hemel Hempstead for a tour to get the company’s perspective.

So, come back for part 2 on Monday 24th September, where we will dig into what it is like to work at Amazon logistics. By the end I hope we can answer the question, “Can we shop at Amazon with a clear conscience?

If you have personal experience of working in logistics for Amazon or other companies and would like to contribute on an anonymous or named basis please contact me on LinkedIn.

Disclosure: I’m not just a busy Amazon shopper, I’m also an investor too.

Glenn Elliott is a technology entrepreneur, investor and advisor, MBA drop-out and recovering CEO with 20 years of experience. His bestselling book Build it: The Rebel Playbook for Employee Engagement is published by Wiley. He writes about people, culture, leadership, technology and the future of work weekly at www.glennelliott.me. 

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Glenn's first book, the international HR bestseller, Build it : A Rebel Playbook for Employee Engagement is available on Kindle, iBooks and from any major bookseller worldwide.

© 2018 Glenn Elliott.

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