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Description: Canada’s competition bureau is taking on Amazon, the giant of the retail world that has only grown stronger during the Covid-19 period. The basic problem, as has been observed by US Senator Elizabeth Warren, is that Amazon owns the marketplace, and the company sells its wares in that same market. This conflict of interest causes concerns around the pricing of its goods versus other sellers in the market, and, about how Amazon may be sharing customer information across its various structures, such as Alexa, Whole Foods, and the regular Amazon online store. Former Amazon V.P. Jeff Bray has said “Amazon’s strategy of growth over profits doesn’t make any sense at all, unless your end goal is to become monopolistic in size to point in which you regain pricing power.”

Date:  October 11, 2020

Source:  thestar.com

 Link: https://www.thestar.com/business/opinion/2020/10/10/the-competition-bureau-needs-to-come-up-with-recommendations-that-target-the-inherent-conflict-of-interest-around-third-party-sellers-head-on.html

Discussion points:

1) Have you been using Amazon’s services more in recent months?

2) What did you find was the most interesting part of the article for you?

3) Did you ever think about the title of your accounting text, Wiley’s Financial Accounting: Tools for Business Decision-Making? What tools from this text could accountants apply in assisting the Competition Bureau in this examination of Amazon?

One Response to “Taking on the Giant”

  1. Jessie LeGrand, Andrew MacDonald, Tevin Lewis

    1) We’ve all been using amazon a lot more than usual, primarily due to the pandemic. With all the restrictions imposed due to COVID 19, it can be hard to access goods at in-person stores and Amazon, being the largest E-commerce store, is considered reliable and quick for ordering those needed goods. Even after the pandemic is over, we may find ourselves still turning towards online shopping rather than in-person shopping simply out of convenience.

    2) There were two points that stuck out to us in the article. The first was that Amazon does not really focus on building profit, but rather on building growth. Being the largest online seller and Ecommerce platform, it’s shocking that they are still seeking to expand even more, selling products for a lot cheaper than they need to. The second point that stood out to us was the fact that Amazon does not actually get most of their money from actual sales, but rather through advertising and their Amazon Web Services (which is essentially selling data to other third parties).

    3) One thing that accounting teaches us is how to analyze the data and pick out what is most useful for best understanding the financial position of the given company. The gross profit margin is a useful tool in this context, as the fact that Amazon’s sales revenue is surprisingly low for a company of that size, means that the ratio is going to appear different than what one may expect, making it a good red flag that something else is going on. The operating margin is supposedly 3.4% in North America, and negative elsewhere, which should be unsustainable for a company only selling goods. Keeping in mind who owns the inventory, the fact that 20% of the goods amazon sells actually belong to other sellers will also affect their sales revenue (goods on consignment).

    Reply

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