This week Amazon.com celebrated its 25th birthday. For the most part it’s been a good two-and-a-half decades, and it is hard to argue with Amazon’s track record of success as it remains the company in history that grew a bookstore into a trillion (almost) dollar business in a race to own as much of the consumer’s whole paycheck as possible.
Still, in every race there are hurdles, and this week both Amazon and Walmart seem to have hit that part of the track during the race for the consumer’s whole paycheck. Amazon in some ways was the victim of a race run so well that regulators are taking a second look, competitors are loudly complaining and even the courts are taking a tougher line on its business practices.
But, as Walmart and Amazon seem to like to do things in tandem, Walmart is also paying for some success — in this case success in rapidly building out its eCommerce operations. Its costs, however, can be measured in dollars.
About a billion of them.
So how did everyone do clearing this week’s hurdles course?
The Big Blip of the Week: The Regulatory Iceman Cometh
In 2017 alone Amazon laid out over $20 billion in investment and acquisitions — and as 2019 got up and running, it was pretty clear that slowing that pace was not on the agenda. In fact, in his annual shareholder letter, Amazon’s CEO was touting the glories of making big bets, even if they don’t exactly go to plan.
“As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle,” CEO Jeff Bezos wrote in the letter. “Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures. Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out.”
But as regulators are taking a closer look at big tech in general, and Amazon in specific, the question is beginning to surface whether the U.S. government is about to forcibly slow Amazon’s pace. And Amazon’s competitors in retail are working hard to make sure that the regulators take a close enough look
“It’s pretty clear to us that the FTC [Federal Trade Commission] and different relevant regulators should be taking a much closer look at these platform companies,” said Nicholas Ahrens, vice president of innovation for the Retail Industry Leaders Association (RILA), in an interview, according to Bloomberg.
“We are here to help,” RILA noted additionally.
RILA members include members include Walmart, Target and Best Buy, among others.
RILA further warned that tech companies have the power to favor their own products over sellers on their platforms, collect data about competitors and allow for the spread of counterfeit goods.
It should be “quite concerning to the commission that Amazon and Google control the majority of all internet product search, and can very easily affect whether and how price and product information actually reaches consumers,” the trade group said in a letter.
When the outlet asked about the increased government attention, a spokesperson for Amazon pointed to recent comments from Jeff Wilke, chief of the company’s worldwide consumer division. Wilke said, per the report, “We believe the most substantial entities in the economy deserve scrutiny. Our job is to build the kind of company that passes that scrutiny with flying colors.”
The regulatory ride goes on. But regulators weren’t Amazon’s only handful this week, there were also the courts.
New Responsibilities: Court Finds Amazon Accountable for Third-Party Goods
In 2014 Heather Oberdorf bought a retractable dog leash from a seller on Amazon’s marketplace. Then it snapped while she was walking the dog, and blinded her in the eye it flew into. The seller was called the Furry Gang and she tried to sue them. But neither she nor Amazon could find them.
So she sued Amazon instead for negligence.
She initially lost her case against the eCommerce retailer in a Pennsylvania court, which ruled that because Amazon didn’t technically sell her the device it could not be liable for her injuries. The court specifically cited Section 230 of the Communications Decency Act, which protects a platform from the actions taken by its users.
An appeals court has now reversed the ruling, saying Amazon can be held liable for third-party sales on its site. Amazon might be protected by Section 230 when it comes to speech, but not in the sale of real-world goods that can real-world hurt someone.
Cases of this type have come up before, and Amazon has always won — until now.
“It’s gratifying that the 3rd Circuit agreed with our argument and recognized that the existing interpretation of product liability law in Pennsylvania was not addressing the reality, the dominance that Amazon has in the marketplace,” David Wilk, Oberdorf’s lawyer, told Reuters.
Circuit Judge Jane Richards Roth wrote the decision, and noted that Amazon’s liability issues from the fact that it is the center of the customer relationship. The site “enables third-party vendors to conceal themselves from the customer, leaving customers injured by defective products with no direct recourse to the third-party vendor.”
The panel sent the case back to the lower court, which will have to decide whether the leash was actually defective.
But whether this ruling will stand is another matter. Amazon has faced this issue twice before in front of appeals courts, and won — the 3rd Circuit is the outlier. As of now Amazon has not commented on its plans, but it is likely the issue is far from settled.
But then, Amazon is not the only big name in retail with unsettled issues this week.
The Big Blip of the Week: The High Cost of Success In eCommerce
It is said you have to spend money to make money, and when it comes to eCommerce Walmart is clearly taking that seriously. The firm’s eCommerce division is projecting losses of around $1 billion as it works double-time to catch up with Amazon.
That great big pricetag is a source on internal intension between Walmart eCommerce CEO Marc Lore and Walmart U.S. CEO Greg Foran, according to reports.
Walmart eCommerce brings in sales of about $21 billion.
Meanwhile some of its biggest eCommerce buys — Bonobox, Eloqui and ModCloth — are reportedly underperforming and unprofitable. Some of those (more on that in a minute) are reported to be going up for sale — even though they will almost certainly be sold at a loss — and the eCommerce division reportedly won’t acquire any new companies in the foreseeable future, “barring an incredible acquisition opportunity that is just too good to pass up,” according to sources.
Walmart has previously said it was anticipating the losses from the division.
Foran is pushing more resources going into the brick-and-mortar business that is Walmart’s cash engine — cutting prices. He is also reportedly irritated that Lore gets credit for Walmart’s flourishing online grocery business, which relies on stores for sales. This has led to talk of Lore’s departure — though Lore denied that rumor about a year ago. Lore, who joined Walmart from Jet, said he would stay on at least until the fall of 2021.
Foran’s performance bonus every year is directly connected to the operating profit of the U.S. business, which includes the eCommerce division, Vox reported. Lore’s yearly bonus is not.
Lore is still owed $291 million over the next three years from the company’s acquisition of Jet, as well as Walmart stock that is worth almost $300 million.
And though it seems like Lore is staying on board — for the time being anyway — at least one of his division’s purchases is already confirmed as going up for sale.
Goodbye and Good Luck: ModCloth is Getting Cut Loose
After the reports early in the week about eCommerce losses, and the rumors about the less than performing new pitches in Walmart’s eCommerce bullpen, it was no great surprise to learn that ModCloth is getting cut from the team.
Though Eloqui, ModCloth and Bonobos were all discussed as possible cuts, it seems that so far only ModCloth is going up for sale — Bonobos is staying on board, as is Eloqui. Both ModCloth and Bonobos were 2017 purchases made to appeal to a younger and more digitally-focused breed of shopper to better compete with Amazon. But ModCloth was always a tough fit with Walmart, with dedicated longterm customers widely panning the Walmart buyout and vowing to never shop the brand again.
“I shed a little tear when I deleted the app. I felt like I was breaking up with someone,” one supply chain analyst said told the LA Times about her reaction to the news.
And that, notably was a tame reaction. Less tame, and slightly more elitist, was this complaint from LA’s Connie Warner: “The thing I loved about Modcloth is that I knew the clothes I bought there couldn’t be found at Macy’s and weren’t worn by the masses. No more. I’ve unsubscribed from their emails. I refuse to shop at a store owned by Walmart.”
Not only did she refuse, she also started a Boycott ModCloth page on Facebook.
In the end Walker will get what she wanted: Although no hard dates have been assigned, reports indicated that ModCloth will probably go this year.
We hope that poor broken-hearted supply chain analyst can find love with whomever ModCloth’s new owner is.
As for the rest of us, the lesson of the week is that no matter how well the race is run, it’s never going to be all laurel wreaths and medals. Sometimes it’s just going to be about clearing the hurdles, and getting ot the next part of the track.