COLUMN: Is Amazon good for the Irish economy?

The theme of my column this week is prompted by the recent launch of a new Irish sales portal (amazon.ie). In the past, when Irish consumers used the Amazon web site to purchase goods, it was the UK portal (amazon.co.uk) that served them. One of the inconvenient consequences of Brexit was that many of the third-party British selling partners using Amazon decided that customs hassle associated with selling into Ireland, a relatively small market, was not worth it. So something had to be done about that.

To unpack what is going on here we have to step back and reflect on how the phenomenon of e-commerce took the retail world by storm. In 1994 Jeff Bezos, an investment banker, set-up a system to sell products using the then relatively new World Wide Web. Initially he focused on books, since these were products whose simple physical characteristics were already standardised by book publishers (a Penguin book is a Penguin book), and were unlikely to be damaged in the post. Even better, he could do deals with publishers to convert physical books into electronic (or Kindle) versions and bypass the cost of printing. Out of such simple beginnings Bezos’ operation grew phenomenally and now has a dominant position in the world of on-line retailing.

Shrewd move

Starting with books was a shrewd move since it enabled Amazon to establish its reputation and efficiency before moving into other more challenging lines. Today, not only can you buy an almost infinite range of goods that conventional shops anywhere in the world might sell (other than some food items), but the speed of delivery is extraordinarily fast. I checked to see if I could buy a coffin on Amazon, but was disappointed to see that it only sold small coffin-shaped ornaments. On the other hand, I could easily have bought both Milk of Magnesia and rope, two staples of west of Ireland retailing in the past.

The next expansion of Amazon was when they emulated supermarket stores that permit selected niche product manufacturers to set-up stalls inside the supermarket. In a similar fashion, firms can register with Amazon to have their product range displayed on the massive Amazon site, but where orders are directed from the site for fulfilment by the specific firm. Of course, there is a price to be paid by the niche manufacturer for this service, as well as an element of risk that Amazon may come to dominate the sales strategy in a way that may not always be in the interests of a small firm.

Amazon diversified even further in 2006 by introducing Amazon Web Services (AWS), a cloud-computing service that has become the largest such service in the world, operating many facilities in Ireland.

Prior to 2021, Amazon sales to Ireland were sourced mainly from British-based warehouses and fulfilment centres. In 2022 a massive fulfilment centre was constructed in west Dublin and the employment generated (about 500) was warmly welcomed by the government. Now we have split from the UK system and have our own retail web site (amazon.ie). This initiative was also warmly welcomed by the government, which stressed the potential benefits to small Irish manufacturers of having easier access to selling on the Irish site.

Total employment by Amazon in Ireland is currently 6,500, ranging from less skilled jobs in the warehouse/fulfilment centre to highly skilled technical and engineering jobs in AWS. The attractiveness of such an employer is obvious and it fits well with the Irish strategy of attracting foreign investment in the service sector to offset losses in older manufacturing firms.

Amazon is not the only firm to have revolutionised retailing through e-commerce. But it is by far the biggest and has a dominant position. The overall consequences for conventional retailing can be seen in the small towns and villages of the N&W region. Traditional retail outlets competing with Amazon have already been closing in droves. In some cases there is a change of use to coffee bars, cafes and restaurants, and other niche suppliers, particularly when there is a thriving tourist demand. In other cases the old shops are boarded up and become derelict. This is the same phenomenon that occurred when supermarkets first arrived in western towns and replaced the small grocery stores that I remember in the Westport of my youth,

Survival strategy

Perhaps the best survival strategy for conventional retail is to combine their products with expertise. For example, I can buy household electrical goods on Amazon, but a visit to a local, well-run store provides advice, information on installation, and contacts to handle any repairs over the lifetime of the product. Real bookshops can do much more than sell books. Those that act as focal points for book clubs, book launches and create an environment that encourages browsing tend to prosper.

E-commerce will devastate our conventional retail system only if traditional establishments fail to react to the threat by innovating in ways that counter a future where everything will be bought on-line and delivered to our door. The pandemic lockdown showed how a local adoption of e-commerce can be useful in times of need. But if handled wisely, visiting real shops and interacting with people is no more likely to die out than future tourism is likely to replace actual tours by virtual tours.

The truth is that shopping is not just an economic transaction involving clicks on a keyboard; it is also a social transaction that will remain an essential part of our lives in the community. That might just be the unique selling point of retail in our Northern & Western region.