France Bans Free Delivery. Will it Hurt Amazon Prime?

The country is trying to protect its local bookstores.

Jul 22, 2014 at 2:29PM

Amazon (NASDAQ:AMZN) has found ways to make up for the fact that it does not have physical locations. Price has been an important tool, as has free delivery.

Now France has decided that Amazon -- and other online retailers -- have too many advantages over brick-and-mortar stores. The country has made it illegal to offer free delivery. In response, Amazon has added a $0.01 charge for delivery to its French customers, which could lead to further legislation closing that loophole.

"The French like to fight losing battles," Daniel Kline said while debating the issue with Jason Hellmann and Jake Mann on Business Take, the show that gives you the Foolish perspective on the most important business stories of the week. "Creating these artificial barriers never works. It always backfires."

Why is France doing this?
France made the move, according to France24, to protect the nation's roughly 3,500 bookstores from online competitors that they accused of "dumping" books on the market at a loss. France has a strong book-selling tradition -- it has nearly twice as many bookstores as the 2,000 in the United Kingdom. Online sales have hurt those stores in France, where book sales dropped 4.5% in 2012 compared to 2011, according to government figures.

Data also showed that 17% of all book purchases in France were now online, up from 3.2% in 2003. 

France has a long history of trying to protect its bookstores -- more than 800 of which are independently owned. It has always forced a sort of socialism on the industry. The law banning free delivery is actually an amendment to a 1981 statute that capped discounts on new books at 5%. 

Controlling prices in physical bookstores might have been somewhat possible, though it seems like smart sellers could come up with ways to skirt the 5% rule -- perhaps offer free coffee with the purchase of a book, or give a free title for every 10 purchased. Getting around rules designed to put all companies, big and small, on a level playing field is even easier when your business is both online and not based in the country trying to control your sales. 

"We are unfortunately no longer allowed to offer free deliveries for book orders," Amazon explained in an FAQ for its shoppers in France. "We have therefore fixed delivery costs at one centime per order containing books and dispatched by Amazon to systematically guarantee the lowest price for your book orders."

With a growing number of book sales becoming digital, France is trying to put the genie back in the bottle. It won't fit. The Internet is, at its heart, a capitalist democracy. Attempts to force it to conform to socialist ideals -- no matter how well-intentioned the idea of protecting a culture of physical bookstores is -- won't work. 

Is the death of stores inevitable?
When Wal-Mart (NYSE:WMT) and the other big-box stores began their march across America, they left a wake of devastated downtowns filled with vacant storefronts. A few communities outlawed the large chains, but mostly that caused their citizens to go a town or two over to shop.

Some small retailers survived, and even thrived, by figuring out how to compete. Maybe they offered better service. Maybe they found a niche that the bigger chains couldn't cover. Whatever it was, some found a way to exist in the new reality. Bookstores -- be they in France or anywhere else -- need to do the same

What France is trying to do is admirable. Nobody wants to see a vacant space where a thriving bookstore once was. But people -- not governments -- need to vote here.

If the French prize their local bookstores, then they should patronize them and not buy from Amazon. Regulating against progress never works. Amazon will ultimately find ways around the ban -- even if French politicians find a way to make them charge more than $0.01 for delivery.

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Daniel Kline has no position in any stocks mentioned. Jake Mann has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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