As if small business owners needed another thing to worry about. E-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) is implementing a new returns policy for sellers, which yet again puts buyers first and sellers seconds. The new policy states that all items sold on Amazon.com will be “automatically authorized” for return.
That means that even sellers who sell out of their homes (as opposed to using Fulfillment by AMZN) will be forced to pay a refund if the buyer wants to return the item.
The new policy puts consumers in the driver’s seat. It also puts small business owners in crutches.
It’s an aggressive move by Amazon. The policy change is insanely business-unfriendly, but insanely consumer-friendly. Small business owners are now either forced to pay for Fulfillment by Amazon, or be fully subject to and accountable for often irrational consumer decision making regarding returns.
Consumers, though, get to return an item whenever they want, regardless of who sold it to them. In this sense, the new policy makes the consumer shopping experience on Amazon.com that much more cohesive.
So is AMZN smart in instituting this policy change?
I think so. Here’s why.
Why This Move Is Good for AMZN Stock
Here’s the thing about Amazon: It is the biggest game in town, and that allows it to be business-unfriendly and still succeed.
Interestingly, in the same week that AMZN instituted this policy change, there was another article out on Business Insider discussing the struggles between Amazon and small business owners. The article detailed a small business owner who had put out a window display reading “F*** Amazon.”
Clearly, she’s not a fan.
But she also said in the article that she would “die” without Amazon. Her business, Fish’s Eddy, not only sells products through Amazon.com, but also buys basic supplies from Amazon.com as well. In other words, her business is dependent on Amazon for two things. One, low-cost goods. Two, wide online sales distribution.
Fish’s Eddy isn’t alone in its dependence on AMZN. It’s just one small business in a good many that has built a dependence on the company for many things.
And that is why Amazon won’t loss small business sellers as a result of this policy change. Those business owners would “die” if they left the Amazon ecosystem.
Even if they all teamed up to take down the mighty company, that likely wouldn’t work either. About 55% of all online searches now start on Amazon. That is just too much volume for even a collection of small business owners to dethrone.
So Amazon wins with this new policy. The e-commerce giant will simply transition everyone to Fulfillment by Amazon, which charges for storage space and fulfilled orders. In turn, the company will rake in more dollars per seller in its community. That will boost profitability, the one thing that AMZN stock bears keep hanging their hat on.
Bottom Line on Amazon Stock
AMZN continues to take over the world.
Okay, maybe that’s a bit hyperbolic, but this most recent move is, at the very least, proof of Amazon’s monopoly-like dominance in the retail world. Amazon wouldn’t aggressively up costs for its sellers unless they were pretty certain those sellers would absorb those higher costs.
Why would they absorb those higher costs? They have nowhere else to turn to. Without AMZN, they would die.
So Amazon’s scale has put itself in a win-win situation. And that is why Amazon stock investors love this market-share grabbing growth narrative despite its lack of profitability. Profitability will come later. Once market dominance is reached, Amazon can pull one of many levers to boost profitability.
Raking in more dollars from sellers is one of those levers. These levers will keep being pulled. Consequently, the company’s profitability will soar long-term. So will AMZN stock.
As of this writing, Luke Lango was long AMZN.
