Will Amazon Win the Fight in France?

Amazon has been hit by a new law in France and has responded by adhering to the letter of the law, if not the spirit.

Andrew Marder
Andrew Marder
Jul 14, 2014 at 4:00PM
Consumer Goods

In 1981, France decided to keep little bookstores in the game by leveling the playing field -- or, depending on your economic view, by turning the playing field into a weird cosmic dystopian landscape. The country passed a law that limits discounting on books to 5% in an effort to keep small booksellers protected from larger chains. Last week, the country decided to rework the law in order to keep those same sellers protected from the thundering blows issued by Amazon.com (NASDAQ:AMZN).

French authorities across the political spectrum celebrated new legislation that stops online booksellers from offering any discount on book cover prices and disallows free shipping on books. Amazon responded by dropping its shipping prices to one euro cent.

Source: Amazon.com.

Amazon's European struggle
In addition to France, around 10 other European countries have book price-fixing laws in place. In Spain, France, and Germany, ebooks are also covered by such laws. Even with these restrictions in place, Amazon's German sales have been rising faster than its U.K. sales, for instance, where there are not similar price restrictions. Revenue in the U.K. grew by 36% last fiscal year while Germany revenue increased 46% over the same period.

The bigger fight for Amazon may be its European tax problems -- or rather, Europe's problem with Amazon's taxes. Due to Europe's awkward and loophole-filled economic structure, companies across the board are able to abuse the tax system in order to pay less than "their fair share."

Amazon has come under fire in the U.K., France, and Germany for its corporate structure and the tax advantages that it's been able to use. Those have a direct impact on Amazon's bottom line, and in its most recent annual filing with the SEC, Amazon said the "favorable impact of earnings in lower tax rate jurisdictions primarily relates to our European operations." 

The French revolution
Many have seen Amazon's decision to charge a cent for shipping as a slap in the face of the new law. The French minister of culture and communication is quoted as saying "everyone has had enough of Amazon" -- apparently Amazon still has more to give. If legislation were to go further, barring Amazon from offering effectively free shipping, it could be the beginning of a big change for the way the business has to operate in France and Europe.

The middle ground of large book retailers has been eroding in France recently. Over the last two years, two of the country's big chains have shut down. That's left independent small stores and Amazon at the two other extremes. This new law stacks the deck in the independents' favor, and may require Amazon to find a new way to compete.

For now, it doesn't look like Amazon has any plans on blinking in the face of the French stare-down. The move to charge a cent for shipping is clearly sending a signal to the French government, and Amazon seems to be daring the government to make another move. Where the French go from here, and what else they can do to shut Amazon out, remains to be seen. It's not going to be good news, though, that's for sure.

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