Amazon: Playing By Different Rules

Amazon has been forcing the pace this year - and its rivals are unlikely to see it relax into a casual jog over the next 12 months.

It's not just prices that the company is wringing out. It's making ordering online so attractive that you'd almost be embarrassed to admit you had bought something from a shop.

At the moment, Amazon can reach about 15 per cent of Americans with its same-day delivery offer. But it is building another five warehouses and, once it secures space in the top 20 metro areas, its same-day offer would be within striking distance of 50 per cent of the population, according to analysis by supply chain consultant MWPVL.

Amazon has already spent about $14 billion in the last three years on new warehouses and is adding 5,000 full-time warehouse workers to its existing 20,000, according to Bloomberg.

It is even finding ways to deliver on Sundays via the US postal system and is adding robots, extra storage space and even refrigeration units to its 90 facilities to improve efficiency and delivery times.

The service is hardly expensive when weighed against the cost of fuel. Customers pay an extra $8.99 (£5.45) and as little as $3.99 for customers who have signed to its $79 a year, two-day Amazon Prime service.

But the strategy is not without its detractors. This morning the Financial Times newspaper complains that Amazon 'gets to play by different rules'.

'If the profitability of most companies declined steadily as the year wore on, alarmed investors would desert their shares,' it complains on behalf of investors.

To us this sounds a little like behind-the-scenes sour grapes from rival firms struggling to cope with the new reality that stores are too big and too, well, last decade.

Amazon made a net loss in the three months to the end of October but, even so, the share price is up 57 per cent this year. The move into a loss was seen by many as Amazon taking an even more aggressive stance as it invests in new technology - not least the Kindle - but also warehouses and, of course, prices.

The reason is that its sales, compared to most retailers, defy gravity and are estimated by ChannelAdviser to have increased 25 per cent over the festive season. Total sales are expected to reach $75 billion this year: about £45.5 billion.

The hope on Wall Street, says the FT, is that at some point Amazon will convert sales into profit - presumably once it has thoroughly undermined all its bricks and mortar competition to the point of no return.

Although, the FT notes, no one has yet been confident enough to press Jeff Bezos for a firm answer on when he thinks that might be.

We wonder whether the question, however, should be when its rivals will admit they might have to rethink profit returns while they find ways to stem the rising tide.