Apart from being the right thing to do, Amazon.com, Inc.‘s (AMZN) pledge to expand same-day service to minority urban neighborhoods is an important change for one of AMZN’s cornerstone initiatives.
A Bloomberg investigation found that AMZN’s Free Prime Same-Day Service excluded zip codes that weren’t predominantly white. In addition to being racist, the policy robbed Amazon of potential revenue — and loyal customers. Bloomberg puts it well:
“For residents of minority urban neighborhoods, access to Amazon.com’s vast array of products — from Dawn dish soap and Huggies diapers to Samsung flatscreen TVs — can be a godsend. Unlike whiter ZIP codes, these parts of town often lack well-stocked stores and quality supermarkets. White areas get organic grocers and designer boutiques. Black ones get minimarts and dollar stores. People in neighborhoods that retailers avoid must travel farther and sometimes pay more to obtain household necessities.”
The story goes on to quote an AMZN customer who spends about $2,000 a year on Amazon Prime, who happens to live in an area that’s 90% black. Clearly, Amazon would be well-served by extending its Prime same-day service to this shopper and others in her neighborhood.
AMZN Should Always Prime the Pump
Don’t forget: Amazon Prime is a key part of AMZN’s strategy. For $99 a year, members get guaranteed two-day delivery of tens of millions of items — as well as digital music, e-books, streaming movies and TV shows. The company is focused on expanding its Prime membership rolls because subscribers spend far more money on the site than non-Prime shoppers.
Prime members also serve as an audience for the company’s nascent but critical media content business as it goes head to head with Netflix, Inc. (NFLX) and other streaming media competitors.
Amazon wisely responded to widespread complaints about the racial gaps in its service. From a statement by AMZN:
“Very shortly, we will be expanding Prime Same Day Service to every zip code of the 27 cities where Prime Same Day delivery is currently launched. We will further not launch the service in any new regions, until we are able to secure a carrier for every zip code. We are still figuring out the details and procuring last mile delivery for each of these zips, but we should have 100 percent coverage shortly.”
In addition to being just and good business, AMZN’s response is an important step in mitigating headline risk. Contrary to the popular saying, there is such a thing as bad publicity, and being pegged for racist practices is one of the last things any company needs. After all, a bad reputation is hard to shake.
Investors want to focus on Amazon’s growth in retail, digital content and cloud-based services. Fixing this issue might not be a catalyst for Amazon stock, but now neither will it become a headwind.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
