All out attack is Amazon's best form of defence

Thursday 04 October 2018

Article

Amazon's move to raise their employees minimum wage to $15 per hour is a strategic masterstroke. 

On the face of it, the motivation is to redress simmering concerns over employee pay and conditions - and this move certainly addresses that criticism head on. 

But in making such a bold and public shift Amazon have catapulted themselves into the role of national champion, simultaneously starting to campaign to raise federal minimum wages too.

The genius of this move is that it throws a gauntlet down to the other mass employers to follow suit - and they are almost universally less well placed to do so.

As an example Walmart's average profit per employee in the US is roughly $12,000 compared to Amazon's $25,000 per annum. In raising minimum wages Amazon is estimated to see a $2 per hour or $4,000 p.a. wage increase on average.  For Walmart to follow suit would almost certainly cost far more than $2/hr and would therefore hugely undermine profitability. 

So this move reinforces Amazon's proposition to talent and at the same time puts substantial pressure on mainstream retail rivals - restricting their ability to compete still further. 

Of course if it were not for Amazon's ability to cross-subsidise their retail business with the hugely lucrative AWS business unit then they would be far less able to make such a bold move. 

It seems that Amazon have turned what may have been an Achilles heel into a major source of competitive advantage - a masterstroke.