retail news in context, analysis with attitude

The Wall Street Journal reports that when product and service suppliers want to do business with Amazon, the retailing giant often has a condition for making a deal - those companies have to be willing to allow Amazon to "buy big stakes in their companies at potentially steep discounts to market value."

According to the Journal, Amazon "has struck at least a dozen deals with publicly traded companies in which it gets rights, called warrants, to buy the vendors’ stock in the future at what could be below-market prices, according to corporate filings and interviews with people involved with the deals.

"Amazon over the past decade also has done more than 75 such deals with privately held companies, according to a person familiar with the matter. In all, the tech titan’s stakes and potential stakes amount to billions of dollars across companies that provide everything from call-center services to natural gas, and in some cases position Amazon among the top shareholders in those businesses.

"The unusual arrangements offer another window into how Amazon uses its market heft to increase its wealth and clout."

The Journal writes that "an Amazon spokeswoman said the warrants it obtains in commercial agreements are typically tied to milestones that Amazon has to meet, such as large purchases from the supplier. The company declined to comment on specific deals, or say how many warrants it has exercised or the amount of money it has made from such agreements."

One of the companies with which it does have an agreement - SpartanNash.

The Journal  writes:  "Grocery distributor SpartanNash Co. last year amended a contract with Amazon to deliver groceries to its Amazon Fresh arm. The Grand Rapids, Mich.-based company had been supplying Amazon with food since 2016, but this time Amazon added a condition: if it bought $8 billion worth of groceries over seven years, it could get warrants to purchase around 15% of SpartanNash’s stock at a price potentially lower than the market. Amazon also said it wanted to be notified of any takeover offers for SpartanNash and have a 10-day window to offer a counter-bid.

"SpartanNash executives were taken aback, said people familiar with the matter. No customer had requested such terms before. Executives ultimately decided they didn’t want to haggle with one of SpartanNash’s biggest customers, and that being tied to Amazon could raise their company’s profile, one of the people said. Amazon received warrants in the company when the deal was announced that would amount to 2.5% of its stock if exercised. If it receives and exercises warrants for the additional 12.5%, according to the contract terms, it would be SpartanNash’s second-largest shareholder after mutual-fund manager BlackRock Inc."

KC's View:

I know I already used this movie quote this week in a different commentary, but I can't help but use it again because it seems so appropriate.

It is like Amazon made SpartanNash an offer it couldn't refuse.  Or, if it did, the wholesaler would take an enormous hit to the bottom line.

I would imagine that some of these vendors look at their regular business reports and see good news and bad news.  The good news is that Amazon is giving them more and more business.  The bad news is that, since Amazon often "ties its warrants to how much business it gives a supplier" (in the words of the Journal), these same business leaders know that Amazon may be coming for their first-born male children (who may be sold into indentured servitude driving Amazon prime delivery trucks).

Now, I suppose that another way to look at these arrangements is that Amazon doesn't just want to enjoy temporary flings with these companies, but wants to be able to get married down the road if the circumstances are right - except that the prenup totally goes Amazon's way.

That said, there are vendors who see an enduring relationship with Amazon as giving them stability and an enduring business relationship, albeit with a retailer that can make or break them on a whim.

It is hard to imagine that this story is going to play well with lawmakers and regulators who already thought Amazon had way too much market power.  I would suspect that Lina Khan, the new and openly-hostile-to-Amazon-on-antitrust-grounds chair of the Federal Trade Commission (FTC), has to be saying that this is what she's been warning about when writing about how current law does not account for modern business realities, especially as practiced by a company like Amazon.

This won't be the last we hear of this, I'd guess.