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The future of retail

The battle is fought; the winner has been declared.  Like in a good kung-fu movie, the hero knocked out all adversaries, one after the other, without much discernible effort.  Two weeks ago, HMV, the last major bricks-and-mortar music and DVD retailer folded.  Zavvi had gone down four years earlier.  Before that, others must have gone the same way, though I wasn't in the country to witness that.

The failure of HMV took no one by surprise.  They'd been close to death for years.  They even started their going-out-of-business sale a good week before actually going out of business, discounting most merchandise by 25%.  It had little effect on customers.  The store in Fulham, which I enter most times I take the tube from there, was as empty as always and rather depressing, people moping about without desire or anticipation in their eyes, when I stopped there one recent afternoon (buying a Ben Harper CD and a Jack Johnson live compilation) when HMV was still just sick.

Then it died.  A week later, after the announcement of the closure of 60 stores, among them the little Fulham outlet, the atmosphere couldn't have been much different.  The store was thronged with people eager to grab a deal.  The prices were the same as before.  Everywhere were the same stickers of blue crosses signifying the same 25% off, but now people were buying as if they couldn't get a better deal anywhere else.  The shelves were half-empty and the tills ringing.  It was an absurd sight.

But nostalgia is a powerful emotion and it succeeds where even the craftiest marketing fails.  When I went to Walthamstow for my first night at the dogs in 2008, it was on the last Saturday of the racing track's existence.  It was like a Premier League game, people streaming towards the venue from all around.  I had no idea how to get from the tube station to the stadium and no problem at all finding it.  I just followed the crowds.

Later on the news one could see baffled punters wondering why the track would be shut down at all, why greedy owners were selling out to equally greedy developer.  The owners didn't get much airtime, though I could imagine their response: If people had come like this in the past, no one would talk about closing shop.  But with fewer visitor in the month running up to the last Saturday than on that one day, carrying on was simply not viable.

Carrying on wasn't viable for HMV either.  People came to their wake in droves – to say farewell to a seemingly permanent presence on the high street and to remember the days when they were young and record stores cool – but they hadn't been nearly as enthusiastic about their media shopping during the preceding decade.  HMV sold cheaper and cheaper, and less and less.  Money kept flowing online.

The kung-fu master, anonymous so far in this story but known to all, doesn't need an introduction.  The vast majority of books – electronic and printed on paper – CDs and DVDs are sold by Amazon these days.  But not only this.  The former online bookseller has morphed over the years into a veritable emporium, stocking electronic goods large and small, clothes, jewelry, games and toys, all sorts of other odds and ends, almost anything you can think of besides cars, houses and vacations.

I've mentioned before that I'm a big fan of Amazon.  Never mind possible just-in-time price adjustments based on the user's purchasing history or perceived purchasing power – there is suspicion that Apple users are shown higher prices for the same goods than Linux and PC users – Amazon is consistently good value.  Sales, and with it the danger of overpaying when no sale is on, don't confuse the picture.  Orders are always filled quickly and reliably, and when something goes wrong, it is rectified with grace.  When the wrong DVD was dispatched to friends of mine in Italy, a replacement was shipped free of charge on my word only.

With every competitor they've driven from the high street or conquered online, Amazon's footprint has increased.  The shopping experience has grown commensurately richer, a one-click convenience seemingly second to none.  But something sinister has been growing along with the company and has recently broken out like pimples on a teenager's face.

Exhibit A: Tax optimization.  I love taxes.  The raised money lays the foundations for a civilized society, paying for roads and public transport, education, hospitals, police, museums and parks, symphony orchestras and the repatriation of illegal immigrants (this last item included in the list to defuse claims that I'm a deluded socialist).  Companies, the point of their existence being the maximization of their owners' profits, like to keep tax payments low by minimizing, avoiding and evading liabilities.  The bigger a company, the more resources are available to this dodgy end.

Amazon has devoted substantial resources to complex transfers of revenue.  Sales per country in Europe are obfuscated and not taxed directly, and payments are handled in low-tax Luxembourg.  In an inverted financial version of the horsemeat scandal where a retailer sources beef from a supplier in Cyprus who in turn gets his stuff from the Netherlands from a company that in turn imported it from France where it arrived from Romania, Amazon is channeling revenue and profit to where it is cheapest.  In this way, a lot of money is spend with the purpose of retaining a lot of money, by obscuring communication channels and obfuscating detail.  What works for meat packers works for media packers just the same, and the public loses out.

Exhibit B: Precarious jobs.  To accelerate deliveries, Amazon has started renting enormous warehouses in strategically chosen out-of-the-way locations all over the country.  One such warehouse and the surrounding economic environment, in the former coal mining town of Rugeley, Staffordshire, was recently described in a FT Magazine article.  The council was initially very happy about jobs coming back to the town and the prosperity they imagined returning with it.

It didn't quite work out that way.  Most jobs are agency jobs, paid near the minimum wage and created one day and shed the next, depending on the season and the flow of business.  That's how it is, I guess.  Even Waterstone's hires temps to cope with the Christmas rush, but I get a bit annoyed about how the numbers are presented.

The weapon of choice for every embattled enterprise is the number of jobs it secures, the money it puts into the local economic indirectly.  This is how polluters win over residents.  According to the FT Magazine article, which I can't be bothered to fact-check, an Amazon told a parliamentary committee last year that the company employed about 15,000 people in the UK.  This sounds impressive, even if you subtract the number of jobs lost as HMV, Zavvi, Jacobs, Jessops, etc, until you cut through the PR crap.  In October, an Amazon press release paraded the employment of 10,000 seasonal workers.  In the company accounts, you find an average of 3,023 employees, but of course this doesn't sound nearly as good in front of parliament.

Recently, disturbing news has come out of Germany about a security firm of hard-right persuasion that was subcontracted to keep tabs on temporary workers housed in temporary accommodation.  There was more than just a tinge of forced labor and harassment to the story.  Granted, you can choose not to work for Amazon, but those that do tend not to have many options, and Amazon ought to treat them decently.

All in all, it seems as if the paint were flaking off the shiny internet giant in a bad way.  It's still profitable beyond all competition and great with customer service.  The number of different CDs and books on its shelves is staggering, but its reputation has taken a hit.  Maybe HMV is going down at exactly the time when it becomes evident that Amazon needs a strong competitor so that customers can vote with their wallets on how business should be conducted.

18 February 2013