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Amazon (NASDAQ:AMZN) – A Threat for U.K Royal Mail

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Royal Mail Parcel Company which was previously owned by the British state revealed on Wednesday that Amazon’s (NASDAQ:AMZN) new delivery service will take away business from the company and also stated lower shares. Amazon (NASDAQ:AMZN) is one of the biggest online retailers and has a huge market. Recently the company decided to come up with its own delivery service which would enable it to deliver its products on its own without using any outside Parcel Company.

About half of the Royal Mail’s revenue is collected by its parcel services and with the increasing popularity of online shopping the potential for the parcel companies has increased a great deal. With the decrease in letter volumes comes the increase in Royal Mail’s potential.

However, the company is faced with a lot of competition. With companies like TNT and Yodel in the market, Royal Mail was already undergoing a lot of pressure and Amazon’s (NASDAQ:AMZN) plans of delivering it packages on its own just added fuel to the fire. Amazon (NASDAQ:AMZN) is a popular site for online shopping and therefore it was a major source of business for Royal Mail’s parcel services as Amazon (NASDAQ:AMZN) delivered its products through them.

On Wednesday, Royal Mail cautioned that Amazon’s (NASDAQ:AMZN) idea of getting its parcels delivered on its own would decrease growth from a yearly rate of 4-5% to 1-2% in the British parcels market. Royal Mail also said that this decrease in growth can prevail for at least 2 years if not more.

In October 2013, the British government sold its shares in Royal Mail which declined more than 8% to 430.8 by 0540 ET.

The privatization of the company made the shares float at 330p which aroused critics that said that the taxpayers were being deceived. However, the shares soon went up to 87%.

The chief executive of Royal Mail, Moya Greene said that Amazon’s (NASDAQ:AMZN) entry in to the market of deliveries and parcels has had a startling effect on the market due to its increasing capabilities and potential success.

Greene told Reuters that things for everyone changes in the market when a company as big as Amazon (NASDAQ:AMZN) decided to enter it with its own network of deliveries.

According to analysts, the parcel outlook added to the risks involving the firm’s investments which not only comprises of the declining letter volumes but involves regulatory squabbles as well.

The outlook for the parcel market was worse than anticipated, which means that the revenues generated by the parcels would remain static.

Royal Mail which continues to be Britain’s prominent postal company even after its privatization said that the number of UK parcels delivered went up 2% in the 6 months. However, the stress related to the pricing forced the revenues to go down 1%.

The company’s letter business witnessed 1% rise in its revenues. The company also saw a 3% decline in volumes. The numbers however, were not as low as it had been anticipated. The revenue generated was way better than expectation.

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