Amazon Has Festive Retail Blood On Its Hands

This is a prediction I would happily have wished to have been wrong about. But as retailers begin to talk about their Christmas figures this week, it's clear that Amazon has caused a lot of damage to the high street.

That is certainly the headline at Bloomberg when discussing how department chain store Debenhams has lost a fifth of its value overnight after revealing a disappointing Christmas at the hands of cheaper pricing at Amazon. In just a year, Debenhams shares have lost half their value.

One can imagine it is much the same story at Mothercare. Its name is synonymous with pregnancy and baby care, but just today, its shares have slumped by more than a quarter after Christmas figures were reported to be 7% down on last year. 

Next aside, which has produced upbeat figures -- the tale of woe coming from the high street has been completely predictable. The Times gives a rundown of consumer spending -- which, according to Visa and IHS Markit, dipped 1% in December, the seventh month out of the last eight to see a year-on-year decline. 

To balance things out, The Guardian has Mastercard figures that claim consumer spending was 2% up in December. 

We will get a better idea by the end of the week. By this time, most of the big names in retail will have revealed whether they had a good Christmas or not. The Guardian is tipping M&S to be one of the big names that will announce disappointing numbers, while not surprisingly, the big online companies -- Amazon and Asos -- are predicted to have had a much better time of it. 

Here's the rub. How can high street retailers avoid crumbling against Amazon, which does not have to run stores and appears to deploy some smart accounting practices to avoid paying what would appear to most to be its fair share of UK tax?

The American giant paid just GBP15m of corporation tax across Europe in 2016, despite having revenues of GBP19.5bn. Tax is obviously paid on profit, not turnover, but this is barely a tiny fraction of even a single 1% of its gross revenue. In its UK logistics and warehouse, the Amazon UK services managed to halve its tax bill to GBP7.4m in 2016. This was mysteriously achieved in the same year that this UK arm of the business increased revenue by around 50% to GBP1.46bn.

A spokesperson from Amazon is keen to remind that the company has changed its corporate governance and has been paying UK tax since 2015. What may appear to be low tax rates, compared to such huge revenue is because the company operates to tight margins and has been making considerable investments in its businesses across Europe.

“Amazon pays all the taxes that are required in every country where we operate," the spokesperson says. "We operate a pan-European business from our headquarters in Luxembourg where we have over 1,500 employees and growing, including our senior leadership team. We’ve invested over €20bn in Europe since 2010, and expect to hire 15,000 new employees this year, bringing our total permanent European workforce to over 65,000 people.”

The question remains, though -- how can traditional companies paying sales staff, business rates and UK corporation tax fully compete? They can't. This January will see Amazon with more blood on its hands as poor festive figures are bound to bring down a huge retailing name or two, or at least put them under unprecedented financial strain.

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