Amazon, the 800-pound gorilla retailer that makes customers ‘happy’ is not following the same tactic with suppliers. To begin with, Amazon sees itself as not in the business of selling things, rather the business of helping people buy things. Unfortunately, in the meantime, the online retailer is pocketing a good amount of profit in the name of ‘warrants.’ Recently, it is brought to light that Amazon views suppliers as growth stock as it demands a piece of the company while signing deals with them.
Amazon is undoubtedly pumping up the market presence of many companies. Its list of biggest suppliers shows how wide-ranging the company has become. At least 21 public companies have disclosed that they are generating over 10% or more of their revenue through Amazon buyers. While the retailer has brought many positive changes to almost every industry and company, suppliers cry foul at its warrants. Amazon’s unheard regulations came to effect many years back when the company started marking a significant place in society. Amazon suppliers often complained in the past that the conglomerate reviews its contract every year and plays hardball tactics to put pricing pressure on its deal. In order to remain as a wholesale partner, Amazon asked its suppliers to pay the freight charge between warehouses or to buy more ads. But the recent wave of updates is haunting Amazon suppliers like never before. According to a report published by Wall Street Journal, Amazon views suppliers as growth stocks and demands them to let it buy 30% of their company at a fixed rate, which is often lower than the actual market valuation.
A Piece of Your Company at Amazon’s Hand
Everything comes at a cost! Amazon is using this strategy very well. The online retailer is in one way or the other suppressing its suppliers by putting out a new catch. It is to let them buy shares of the companies’ stocks, remarkably, at a bargain price. As a return, the Amazon suppliers get to sell their products on the platform.
So far, Amazon has struck at least a dozen deals with its suppliers in which it gets rights called ‘warrants’ to buy the vendors’ stock in the future at what could possibly be the below-market average price. The WSJ also cites that over the past decade, the technology and retail giant has signed more than 75 such deals with privately held companies. According to Amazon’s latest quarterly financial filing, its potential equity in other firms is valued at nearly US$3 billion.
Warrants work like stock options granted to employees of a company. Amazon gets to buy its suppliers’ stocks before the deal is done and once the stock prices surge after the announcement of the deal, the online retailer either chooses to hold the warrant over the long-term or sell it off to make a tidy profit. These pressuring demands show how Amazon views suppliers as growth stocks. The online retailer doesn’t leave out any of its suppliers from signing warrants. Everybody starting from call-centre services to natural gas holdings are targeted to be its possible growth stocks. Although these terms are not mandated under government regulations, Amazon takes a dominant step to show its potential in the market.