4/2/2018
By Charles Payne, Principal Analyst and CEO

Trump Versus Amazon

President Trump kept the verbal battle against Amazon going over the weekend. His disdain for the company clearly reflects his frustration with the Washington Post, which has launched a never-ending war against his ideas and presidency that includes dismissing obvious successes.

I’m not a lawyer, but the more President Trump tweets about Amazon, the less likely there will be any action from his administration other than altering the contract with the United States Postal Service.

Tweets

Donald J. Trump
@realDonaldTrump

March 30, 2018

‏I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!

Donald J. Trump
@realDonaldTrump

March 31, 2018

‏While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars. The Failing N.Y. Times reports that “the size of the company’s lobbying staff has ballooned,” and that...

Donald J. Trump
@realDonaldTrump

March 31, 2018

‏...does not include the Fake Washington Post, which is used as a “lobbyist” and should so REGISTER. If the P.O. “increased its parcel rates, Amazon’s shipping costs would rise by $2.6 Billion.” This Post Office scam must stop. Amazon must pay real costs (and taxes) now!

President Trump has long been wary of advantages enjoyed by Amazon; this week, he’s hinting that he’s prepared to take action to level the playing field for small businesses. There is a lot of speculation as to what such action(s) might be.  Everything from an Internet sales taxes to breaking up the company has been speculated.

There is no doubt that Amazon has built a juggernaut by using loopholes. For years, it paid no state or local taxes, and there is no Internet sales tax and utilized advantages (great deal with the U.S. Postal Service), but there is a greater deal with investors that have given the company the kind of valuation that has created unlimited access to funds and the ability to operate at a loss.

Brick-and-mortar retailers have been hampered by a laundry list of hurdles from regulations to taxes.

Creative Destruction

While I agree it’s always painful to see mom and pop stores go out of business or even formerly large businesses such as Toys “R” Us and Sears fade into the dustbin of history, it’s the nature of capitalism. 

Creative destruction, coupled with profit-motivation, is why products and services get better and remain affordable. On that score, history suggests that one day, the competition tables will turn, and Amazon will eventually face stiffer competition.

In fact, it’s already happened several times over, including a company that once dominated retail more than Amazon does today.

The Great Atlantic & Pacific Tea Company

Founded in Manhattan as a store providing an assortment of imported teas, the company pioneered the big supermarket format and it took off.  By 1920, it was a juggernaut that dominated the industry with 4,588 stores, and there were calls for an unfair advantage.

By 1929, there were more than 16,000 locations, and the store was the first retailer to crack $1.0 billion in revenue. 

From 1920 to 1950, A&P faced scrutiny and scorn, and a number of attempts to slow it down, and even to dismantle the company in the name of saving small businesses.

In 1946, a federal judge found the company and management criminally guilty of artificially making prices too low.  The Republican judge was appointed by Warren Harding (perhaps the most pro-business president ever) but decided there would be “no equality of opportunity” of big companies that could drive small companies out of business.

At one point, the federal government was close to achieving its goal of breaking up A&P into seven separate companies, but the election of Eisenhower saw the federal government drop the case.

Eventually, market forces took over as A&P’s rivals improved their approach. The irony is as A&P business peaked, the government was preparing to effectively shut it down.

In 2015, The Great Atlantic & Pacific Tea Company filed for bankruptcy.

President Trump would be wise to skip the war with Amazon, even though the Washington Post will never cease in their war against him and the administration (and conservatives to a lesser degree).

Charles Payne
Wall Street Strategies

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