Amazon is expanding rapidly in the UK, hitting the 10,000 employee mark for the first time, as it broadens its parcel delivery network and charges additional retailers to store stock in its warehouses.
The online retailer is focusing much of its expansion on the logistics business it launched in Britain in 2013 to provide same-day delivery. Faster delivery times have become a critical issue for ecommerce providers such as Amazon, which are keen to snatch market share from bricks and mortar retailers.
The rapid growth of Amazon’s UK business threatens to reignite criticism of its low tax structure. The company paid £11.9m of UK tax in 2014, according to accounts published this week, up from £4.2m a year earlier. Sales to British customers rose 14 per cent to $8.3bn in 2014.
The long-running controversy over Amazon’s relatively small tax payments prompted an overhaul of its structure last month. Amazon set up a London branch of its main Luxembourg retail company and that arm — from May 1 — became responsible for booking sales from UK customers.
The changes will make it easier for HM Revenue & Customs to tax the profits associated with sales to British consumers, which in the past were mostly out of reach.
But for 2014 the figures reported by Amazon.co.uk, which is responsible for the warehouses used to deliver goods in Britain, related to payments for services it provided to the Luxembourg affiliate that booked the sales. Amazon.co.uk reported pre-tax profits that more than doubled to £34.4m on turnover of £679.1m, up from £449.1m.
Most of the businesses that sell through Amazon’s online marketplace deliver their products themselves. Amazon is attempting to convince more of these companies to pay it to pick, pack and ship their products; and provide customer service, including handling returns.
Retailers including Ann Summers, TM Lewin and the Early Learning Centre already use Amazon’s “fulfilment” services, which Amazon claims make it easier and cheaper for businesses to export to foreign markets. It said £1bn in sales from its UK marketplace came from overseas purchases in 2014.
“If you’re a seller with a product in our warehouse, we can deliver that product in one day in the UK and that generally leads to an uplift in sales,” said Chris Poad, director of seller services for Amazon in the UK.
Next month Amazon will open its 14th delivery centre, in Southampton, as it establishes a network of local couriers. It is also opening more large-scale “fulfilment” warehouses, with the latest, in Dunstable, set for September.
Some rivals have asked whether logistics will replace retailing as Amazon’s core business.
“Amazon still calls itself a retailer; but is it?,” said Roger Sunmer-Rivers, chief executive of ParcelHero, a rival courier company. “Increasingly, it’s a logistics provider. Amazon would like to grab hold of everyone and everything and become the pipe through which everything flows.”
Thomas Cullen, analyst at Transport Intelligence, a consultancy, said the long-term question for Amazon was how it makes a return on its capital assets.
“Amazon is competing with the likes of Royal Mail and DHL. Although they have a unique selling point, — their web presence — the concern will be that they have so much capital tied up in the infrastructure [that] the return will be poor. Logistics is a difficult business to be in.”
Royal Mail, Britain’s biggest postal operator, had predicted parcels growth of 6 per cent at the time it was privatised in 2013. Last month it cited Amazon’s decision to launch its own delivery services as a reason why its own parcels business revenues had grown by just 1 per cent.
Although Amazon UK launched its package delivery services in the UK, the US is Amazon’s more typical testing ground. There it has been trialling everything from high-tech drones to low-tech bicycles, as it seeks more efficient ways to deliver parcels on the last leg of their journey to people’s doors.