The Department of Justice may have launched an antitrust review into the major online platforms, but on the retail front it doesn’t appear that these businesses have “reduced competition” as consumer preferences drove the landscape change, according to a report from Moody’s Analytics.
The ratings firm’s report, “Antitrust Probe of Online Platforms Signals that Retail Competition is Alive and Well,” led by senior credit officer Charles O’Shea, noted that the sector’s unprecedented structural transformation is also redefining what competition means in today’s retail world.
“Consumers are driving this shift, empowered with online and social media platforms that give them tremendous pricing and shopping savvy,” O’Shea and his team concluded. That, in turn, has led some of the largest brick-and-mortar retailers to embark on major investments in their own e-commerce and physical store footprints.
Moody’s correctly noted that the DOJ didn’t specifically name Amazon when it disclosed its review. The ratings firm concluded that while Amazon’s success may have resulted in competitors “getting squeezed,” it also resulted in forcing them to “become stronger competitive forces in their own right.”
On July 23, the DOJ’s antitrust division said it is “reviewing whether and how market-leading online platforms” have achieved market power and are engaging in practices that have harmed consumers. The DOJ cited reducing competition and stifling of innovation as two possible practices. While the DOJ did not name specific companies, it did note that the review pertains to “search, social media and some retail services online.” The review is separate from the ones the DOJ is conducting in connection with Google and Apple.
The antitrust division’s Assistant Attorney General Makan Delrahim said that the probe will explore issues such as whether the digital platforms are acting in “ways that are not responsive to consumer demands.” The DOJ further said its goal is to assess the competitive conditions in the online marketplace in an “objective and fair-minded manner” because it wants to “ensure Americans have access to free markets in which companies compete on the merits to provide services that users want.”
U.S. Treasury Secretary Steven Mnuchin, however, did refer to Amazon in an interview on CNBC’s “Squawk Box” concerning the DOJ review. “If you look at Amazon, although there are certain benefits to it, they’ve destroyed the retail industry across the United States, so there’s no question they’ve limited competition,” he said.
But Moody’s instead concluded that what Amazon actually accomplished was to provide consumers with a viable alternative to traditional brick-and-mortar retailers. Amazon, it said, has grown from a book retailer by leveraging seasonal excess capacity to develop third-party retail. “Amazon’s success is forcing traditional brick-and-mortar retailers to adapt by offering consumers an online option to augment their physical capabilities,” the Moody’s report concluded.
While some retailers have fallen to the wayside, that was less about competition from Amazon and more about a retailer’s own ability to adapt. In Moody’s view, that ability has been centered on whether the individual retailers had the financial wherewithal to make the necessary investments for the move online, resulting in a have and have-not situation at retail.
“The bigger, healthier retailers have grabbed a growing market share at the expense of the have-nots. Again, we see consumers benefiting from this increased pricing transparency with a much greater assortment of products across the various retailers,” Moody’s said.
Moody’s added that it believes that on the revenue front, Amazon still lags the clout that the big retailers have. Amazon’s profit engine is its web services business, while international continues to lose money. And over the past five years, North American revenue is about $250 billion less than Walmart’s U.S. revenue.
And while Amazon’s platform has dominated third-party retail, Moody’s O’Shea believes this advantage will wane as other mass discounters and big-box retailers, such as Walmart, move more aggressively to build competing distribution networks within their brick-and-mortar operations.