Mar 29, 2019

Is Amazon Helping or Hurting Small Business?

Everyone called 2017 the year of the “retail apocalypse” after Toys R Us, Gymboree, Payless ShoeSource, RadioShack, and The Limited all filed for bankruptcy. The Armageddon continued through 2018, with Sears, Brookstone, Mattress Firm, Claire’s, and David’s Bridal going bankrupt as well.

A number of factors have contributed to the complete upheaval of big-box stores, from the rise of online shopping to a shift in consumer spending away from material goods and toward experiences like dining and travel. But there’s no denying the central role of one particularly strategic player: Amazon. The behemoth online retailer has orchestrated the disruption of nearly every major industry in the country — and they now make up nearly half of all online shopping sales because of it.

Large retail chains are struggling

If you pay attention to the businesses receiving the biggest blows from Amazon’s competition, though, you’ll notice something important: they’re mostly large, national chains.

While the rise of e-books and Amazon’s Kindle undoubtedly helped shut the doors of Borders in 2011 and played a part in Barnes and Noble’s 6-year decline in sales, independent bookstores are thriving like never before. Between 2009 and 2015 — years in which the nation’s leading big-box booksellers were struggling to stay above water — the number of small, locally-owned bookstores grew by 35%.

And while big-box specialty stores like Toys R Us and Foot Locker suffered as a result of e-commerce, independent specialty retailers seem to be experiencing a renaissance thanks to the popular “buy local” ethic. In an online shopping survey completed by UPS and comScore, 93% of consumers surveyed said they shop at small retailers, 40% of which said they do so out of a desire to support the small business community.

Amazon’s reach goes beyond retail

But retail is just the tip of the Amazon iceberg. Their purchase of Whole Foods in 2017 caused stock prices for major grocery chains Kroger, Walmart, and Target to dive. AmazonFresh, their grocery delivery service, has yet to take off in a way that truly threatens major grocery chains — likely because consumers still overwhelmingly prefer to grocery shop in stores. However, the launch of Amazon Go test stores, brick-and-mortar Amazon grocery stores which provide a seamless, automated shopping experience, could lead to a grocery store apocalypse, especially if they follow Amazon’s history of severely undercutting their competitors.

At the same time, independent specialty grocers and local food retailers seem to be immune to Amazon’s progress in the food space. Nature’s Food Patch, Sprouts, and Natural Grocers — small supermarkets that focus on organic and healthy food — didn’t experience the same negative impact following Amazon’s purchase of Whole Foods. Local bakeries and coffee shops are experiencing such a surge in popularity that coffee titan Starbucks is more worried about competition from your neighborhood cafe than from Dunkin’ Donuts.

Small business is thriving in the face of big competition

The heart of what’s happening here is that big retail chains are playing against Amazon in a game they can’t win, while small businesses are on a completely different playing field. Most companies will never be cheaper or faster than Amazon, so trying to win on that alone is a losing game. However, Amazon will never be able to connect with small communities and push forward social ideals, give shoppers personalized, memorable experiences, or sell unique, quality goods. This local aspect is where small businesses excel.

What’s more, Amazon is a competitor to small businesses, but they can also be a friend. Millions of small business owners rely on Fulfillment by Amazon to fill and ship their orders, and more than half of the products sold on Amazon come from small businesses. According to Amazon’s new small business impact report, more than 20,000 small and medium-sized businesses made more than $1 million in sales in 2017 through Amazon.com.  Many of these businesses are now being showcased (in other words, given free marketing) through Amazon’s new Storefronts platform, which highlights small businesses. Amazon even loaned more than $1 billion in small business funding through their Amazon Lending Program in 2017. If you’re concerned about bias in a report created by Amazon, take it from small business owners themselves: in an Insureon poll of small business owners who sell online, 68% reported that Amazon has had a positive impact on their business.

Some small businesses are still struggling to keep up

Of course, that still leaves 32% who believe that Amazon has negatively impacted their business. The same platform that helps some small businesses can hurt others. For example, Amazon Handmade, a marketplace for artisans to sell goods that are entirely made by hand, threatens to push marketplaces that crafters have long relied on (i.e., Etsy) out of the space. While Amazon gives these sellers a larger audience, they also charge significantly higher fees — a 15% commission fee as compared to Etsy’s 5%.

Then there’s the issue of large resellers pushing cheap counterfeit items on Amazon that aim to undercut successful products created and sold by small business owners. The inventors of Brush Hero had experienced a growth in sales for months after appearing on Shark Tank when all of a sudden their near-perfect Amazon rating started to plummet. They realized after a customer returned a defective product that it was a Chinese-made copycat version sold by another seller.

Luckily, being small means that business owners can adapt to the changing retail landscape more quickly than older big-box stores can. Their agility makes it easier to harness the opportunities provided by Amazon while innovating to beat them out as competitors. Being small also means that small businesses can communicate with their customers on a deeper, more personal level, which will win out in an age where consumers are wary of major corporations and unsatisfied with generic experiences. For a small business, their size might be their greatest weapon against the retail apocalypse.

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About the author

Elizabeth Aldrich
Elizabeth Aldrich
Elizabeth is a freelance writer covering personal finance, business, and travel. Her writing has appeared in The Motley Fool, Business Insider, Yahoo! Finance, LendingTree, Student Loan Hero, FOX Business, and more.

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