Amazon’s annual Prime Day is nearly upon us. Like Christmas in July, this annual “holiday” is a shopping bonanza for Prime members with deals on stuff that they want or didn’t know they needed.
While Amazon aims to reel in Millennial and Gen Z shoppers, one federal agency intends to land this big fish. The Federal Trade Commission (FTC) under Chairman Lina Khan has targeted Amazon in recent weeks. One FTC lawsuit alleges that the digital retailer is employing coercive actions to “trick consumers into enrolling in automatically-renewing Prime subscriptions” and then making it difficult to cancel.
The next impending lawsuit could upend the corporate giant’s business model. Like throwing spaghetti against the wall, Khan hopes something will stick.
Bloomberg reported recently that the FTC is finalizing plans to sue the company over the operations of its core e-commerce marketplace. While it’s understandable that people have concerns about how retail giants, from Amazon to Wal-Mart and Target, impact traditional Mom and Pop stores on Main Street, some of these selling giants actually facilitate the creation of small enterprises. Over half a million third-party merchants sell on the marketplace and reportedly account for a quarter of the company’s whopping $469 billion in revenue. These merchants can choose to manage their own storage of inventory, fulfillment, and delivery of orders or pay Amazon for a range of these services.
Amazon has said it invested more than $100 billion over the last 20 years in establishing soup-to-nuts logistics capabilities—from fulfillment centers to a streamlined transportation network operating by air, sea, and land—that can guarantee free one- or two-day delivery. Nearly nine out of ten sellers value these services enough to opt into the program.
Khan and the FTC take issue with this voluntary arrangement and could force divestiture of the logistics business. The agency reportedly views Amazon as disadvantaging sellers who opt not to participate in this fulfillment arrangement regardless of its value to merchants and their customers.
Harkening to Senator Amy Klobuchar’s stalled American Innovation and Choice Online Act (AICOA), these antitrust efforts strike at the heart of Amazon’s e-commerce business model and would lead to the demise of the popular free and fast shipping Prime service. Amazon could not realistically meet the two-day delivery window if products are not shipped from its warehouses. Over half of Prime members (59%) agree with Amazon requiring items be shipped from its warehouses to maintain the 2-day shipping offering.
Amazon has won the loyalty of its 200 million members worldwide by delivering the best deal online and doing so expeditiously and reliably. Amazon’s innovation set off an arms race that led to lowered costs for consumers and improved delivery services becoming retail industry standard practices. Low prices and increased access to goods should signal competition under the consumer welfare standard, which underpins decades of antitrust law.
Khan has branded the consumer welfare standard as a “mistake” and “unequipped” to deal with the modern economy. Unfortunately, she has found some policymakers willing to join her backward-looking crusade to toss out the long-standing standard that has guided the economy through tremendous technological advancement and innovation.
Instead, they seek to return to good ‘ole days regulations from the early 1900s guided by a “big is bad” antitrust approach. Their preferred laws and regulations would lead to higher prices and worse consumer retail experiences, as well as more restricted marketplaces for merchants.
When customers learn that the FTC could hamstring a company that is the third most trusted brand in America, they won’t be happy. With a net favorability rating of 78% according to a recent Harvard-Harris poll, Amazon is more favorable than the U.S. military or Google.
Free two-day shipping is a beloved feature of Prime membership and the top reason members subscribe. A whopping 84.6% of users polled pointed to the free and fast delivery as the platform’s best feature. More than half of U.S. adult broadband users subscribe to Amazon Prime. Free shipping of retail purchases overwhelmingly drove their decision to subscribe and remain loyal customers.
The FTC’s biased actions run counter to its stated mission of protecting the public. Opposing a particular company purely because of its size does not necessarily provide grounds to sue, legislate, or regulate it out of existence.
Prime Day promises many deals and discounts along with fast, free shipping for its members. If Khan’s FTC and congressional allies get their way, the best benefit of Prime membership may not survive to see the next Prime Day.
