Is The “Amazon Effect” On Retail Inflation Over?

The pandemic’s whiplash effect on inflation over the past year generated much hand-wringing last month after the report from the U.S. Bureau of Labor Statistics that the Consumer Price Index rose by 5.4 percent, the largest increase in 13 years. Although many economists believe the sharp rise was largely a snap-back from the staggering effects of last year’s worldwide shut-down, the headlines suggest that more than a decade of modest inflation may be coming to an end.

Among the factors said to have contributed to the recent era of low inflation has been Amazon’s aggressive pricing, which has allowed it to eat the lunch of its brick-and-mortar competitors. While the company’s sales have represented just a fraction of overall retail sales (most recently about 4 percent), Amazon’s practices have rippled across nearly all product categories, forcing or intimidating competitors into keeping prices in check. 

But the pandemic that became the horn of plenty for Amazon also accelerated the learning curve for the competition. Companies like Walmart and Target now offer variations on Amazon’s Prime Membership free shipping. Higher-end retailers like Nordstrom and Neiman Marcus now offer free shipping for online purchases, with delivery windows between three and eight days.

As for price competition, an unscientific comparison of 100 products sold by both Walmart and Amazon finds that the two seem to be approaching parity. The survey by TheKrazyCouponLady, a website started by Heather Wheeler and Joanie Demer, found that overall Walmart is matching or beating Amazon’s prices, although not in every category. If, as the survey suggests, the race to the bottom is ending, now that pandemic restrictions are being lifted consumers may be less trigger happy when shopping online.

One of Amazon’s big advantages has been the low wages it paid its workers. That edge is also narrowing. Two years ago, Amazon raised its starting hourly rate to $15 and this Spring, following a failed attempt by workers to unionize one of its warehouses, said it would start paying more than 500,000 employees 50 cents to $3 more an hour. 

Meanwhile, a recent survey by Blind, an app that posts news and commentary on careers, found that 64 percent of Amazon workers would give up an extra $30,000 a year in compensation if they could work at home permanently. Although unemployment continues to be above average, it is rapidly trending down. At some point, all employers are going to be scrambling to fill the jobs that are opening up and those which are likely to as the economy continues to improve.

Finally, Amazon is really not a retailer but a logistics master, able to deliver orders in the blink of an eye. That was easy during a year when roads were spookily empty of traffic, and a homebound nation was grateful. Today the roads are once again crowded with traffic and those now-ubiquitous gray Amazon vans are generating complaints about causing traffic jams. 

And, according to a recent report in the Seattle Times, Amazon’s drivers are injured at a much higher rate than warehouse workers, and at a higher rate than drivers for competitor UPS.

The wind that’s been behind Amazon’s back appears to be waning and the effect its cutthroat pricing has had on inflation may be fading. But the company still has its massive customer base and all the data and metrics that generate every day to guide the company as it weaves its way into every corner of our lives. To compete, the competition will need to know its customers at least as well as Amazon.