Treasury Secretary Steven Mnuchin concurred with the DOJ that anti-competitive practices at the big tech companies warrant an antitrust investigation -- an idea first proffered by Walmart. In an interview on CNBC, Steven Mnuchin said that while there have been many benefits to Amazon, the company has also destroyed the American retail industry, thereby limiting competition.
What is the difference between Amazon's competition now and Walmart's in the early 2000s? @BeckyQuick asks Treasury Secretary @stevenmnuchin1 as anti-trust probes into big tech ramp up pic.twitter.com/U3WCiNmxmm
— Squawk Box (@SquawkCNBC) July 24, 2019
The DOJ’s antitrust division can find plenty of evidence to support any contention that Amazon has reduced competition.
Large department stores have been devastated by Amazon. Analysts at Morgan Stanley pointed out in 2016 that department stores have lost $29.6 billion in apparel revenue since 2005, while Amazon has added $27.8 billion.
Amazon's Hit List
J.C. Penney was once a formidable name in retail, and it is on the verge of bankruptcy. Sears has gone under and is emerging from bankruptcy with a mere 450 stores of its base of 3,500.
Apparel stores, in general, are suffering under Amazon’s hammer. Payless, the discount shoe retailer, shut all 2,300 stores and filed for bankruptcy. Abercrombie & Fitch is closing hundreds of stores.
Gymboree went under, and many of its locations were purchased by The Children’s Place. Dressbarn, a legacy retailer, is shutting 650 stores. The Limited shut all physical stores while remaining online.
Of course, bookstores were toast years ago. Borders was killed by Amazon, and Barnes & Noble is on life support.
Does anybody remember Radio Shack? Its 1,000 stores are now down to 70.
Toys R Us blew up in 2017.
Amazon was a major factor in all of these struggles. While companies like J.C. Penney and Sears were already struggling to remain relevant, Amazon hastened their demise.
With the addition of Amazon’s newest clothing feature that allows consumers to try on clothing and return it if they don't like it, apparel is in for an even rougher ride.
These all help the DOJ’s case against Amazon.
There's Plenty of Upside to Amazon
What will not help the DOJ, however, are claims that Amazon harms small businesses. As Amazon stated in its response to Steven Mnuchin, independent sellers account for 58 percent of physical gross merchandise sales.
There’s no question that an independent seller can get broader exposure on Amazon than they ever could in just a local or regional selling area.
Steven Mnuchin and the DOJ have no case here. Indeed, Walmart and other chains certainly put a lot of independent stores out of business, but no antitrust case was ever filed against any of them.
Amazon does not harm consumers.
Steven Mnuchin and the DOJ will have a hard time claiming such a thing when prices are almost always lower on Amazon than a physical store. The e-commerce giant boasts free delivery for Prime members, lenient return policies, and the widest selection on the internet.
Uncertainty Ahead for Stocks
The DOJ also must be careful targeting a company that employs over half a million people at fair wages.
Nevertheless, the argument regarding department and apparel stores is a strong one.
The antitrust threats don’t appear to have any material impact on Amazon stock. The only expectation that the issue might have is if the government actually files a case and if it should win.
One thing is for certain, the FAANG stocks may face headwinds from the DOJ threat as a group, and that's something to be mindful of.