How Can Brexit Impact Amazon?

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With the United Kingdom voting to end its membership in the European Union last week, there is significant uncertainty in the European economy. The free flow of goods, services and labor may not remain unrestricted across the U.K. and Europe, which could impact Amazon (NASDAQ:AMZN) in more ways than one:

Fulfillment Centers: (Impact=Negative) 

Up until now, it was possible for Amazon to maintain a limited number of fulfillment centers in Europe for smooth functioning operations. However, there could be a need to set up additional warehouses both in the U.K. and the E.U. to maintain its operations and introduce faster delivery options in more countries.

Hiring: (Impact=Possibly Negative)

Amazon announced that it was building two more warehouses in the U.K. earlier this year, which was expected to add around 2,500 permanent jobs in the country across a range of functions at its 10 fulfillment centers as well as its London headquarters. Considering that Amazon has often relied on immigrant workers for staffing its warehouses in the U.K., Brexit could create some hiccups for the company in the near term.

If the existing immigrant workforce is unable to stay in the U.K. to work, it could significantly increase Amazon’s labor costs. Moreover, the economic uncertainty is also likely to delay hiring and spending activity by the company. [1]

Sales: (Impact= Neutral to Negative)

Following the Brexit vote, the U.K and potentially the entire E.U. are facing significant economic uncertainty. If the U.K.’s GDP growth rate falls, as anticipated, on lower trade and investment activity following its exit from the E.U., it could lead to lower consumer spending which can negatively impact Amazon’s gross merchandise value (GMV) as well as revenues. [2]

However, there could also be a silver lining in this. If the economy slows down, consumers are expected become more price conscious, and demand for better deals and discounts is likely to go up. Amazon is well-positioned to become the preferred marketplace in such a scenario.

Taxation: (Impact= None)

Although Amazon’s European operations are headquartered in Luxembourg, it already pays taxes in the U.K. for its operations there. Therefore, there is unlikely to be an impact on this front post-Brexit for the company.

Amazon Web Services: (Impact= None)

Amazon is in the process of building AWS data centers in the U.K. that are expected to be ready by the end of this year or early 2017. Europe already has two AWS regions in Frankfurt and Ireland catering to the cloud demand in Europe. In addition to making cloud services faster (lower latency) and more accessible, data centers located in the U.K. will help the company ward off fears of information security. U.K companies already using AWS include Shazam, Unilever, Total Jobs and The Guardian. [3]

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Notes:
  1. Amazon steps up European expansion plans, Financial Times, January 21 2016 []
  2. Brexit will take heavy toll on UK economy, says rating agency, The Guardian, June 29 2016 []
  3. London Calling! An AWS Region is coming to the UK!, Amazon CTO-Werner Vogels’ Blog, Nov 5 2015 []
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