Will criticism hurt Amazon?
SEATTLE — When a New Jersey judge ruled that Amazon.com Inc. breached a groundbreaking contract with Toys R Us Inc., she delivered with the legal blow a public scolding, calling company executives obstinate, arrogant and even childish.
Analysts say the decision could hurt Amazon.com’s relationships with other partners. They also say the judge’s harsh words — including accusations that company executives exhibited selective memories — illuminate behavior some on Wall Street have long complained is too secretive.
Yet the familiar Amazon.com Web site remains hot property, and the Seattle company has signed on several new partners in recent months. Some critics even concede that shareholders will still give the company some time to prove that its secret schemes will bear fruit.
“If Amazon produces the numbers, nobody will care,” said Safa Rashtchy, analyst with Piper Jaffray. “If the growth isn’t there, then I think it will become more of an issue. Why isn’t there the disclosure level that we would expect?”
In her March 1 ruling, Superior Court Judge Margaret Mary McVeigh found that Amazon.com breached a deal that was supposed to give Toys R Us exclusive rights to supply some toy products on Amazon.com. The ruling allows the companies to sever their online partnership.
McVeigh accused Amazon.com founder Jeff Bezos and other executives of tweaking the meaning of words — such as “exclusivity” — to suit the company’s own needs, regardless of how Toys R Us originally understood it.
“Mr. Bezos’ understanding of the exclusivity granted to (Toys R Us) would not be any different than what Jeff Bezos wished exclusivity to be,” she wrote.
She was especially critical of Bezos’ recollection of events. Although Bezos said he had little information about details of the agreement, she wrote, “this court has no doubt his knowledge and understanding went much deeper than revealed.”
At one point in her ruling, she snipped at Bezos, writing that he, “in a rather childlike fashion,” tried to suggest he wasn’t aware of one part of the dispute until Toys R Us slapped it with a restraining order.
David Garrity, director of research with Hapoalim Securities U.S.A., said he’s already begun hearing concerns from some retailers who partner with Amazon.com to sell goods online.
“It should raise question marks,” Garrity said. “The whole issue here is, ‘Fool me once, shame you. Fool me twice, shame on me.’ Who wants to be in that position?”
Garrity believes Amazon.com will need to take some steps to retain the confidence of its business partners and reassure them that it can act in good faith.