As I wrote a few weeks ago, more and more, I find everything is cheaper on Amazon. I’m an Amazon stockholder, and regular customer. As a fan of small business, I’m heartened to see that many of the items for sale on Amazon are offered by independent, small businesses. But are those small businesses thriving?
I was disappointed but not surprised to hear from my friend J. the small etailer that times are tough. Small stores have been struggling for a long time—large chains have a nearly insurmountable advantage with bulk buying. This is an old story. My cousin’s independent bookstore closed 10 years ago, and my father-in-law’s independent pharmacy was forced out of business over 30 years ago. But how does the picture change in the age of online purchasing?
Now in addition to the pressure of bulk buying, there is also pressure from bulk buying of shipping services. For a while, a small retailer could expand their market by putting up a website. If you had items not widely available, you could do a good business. But as more highly specialized items become available on Amazon and other large sites, it’s harder to have a unique niche. And Amazon can always out-compete on shipping charges.
Many manufacturers now have minimum prices for their product. You can’t sell it for less (unless you cheat), so shipping prices are all you can compete on. This mostly helps the retailer, because margins don’t get squeezed. J (who prefers to stay anonymous) writes:
Amazon is very price competitive, so we usually try to stick with items that we do not have to discount in order to have success. […] We also try to look for items that do not have a lot of other Amazon resellers for the same item, so that you stay near the top of the sellers list. IF you’re at the top, orders can be plentiful.
Recently I noticed that more and more items sold by third-party vendors are eligible for supersaver shipping. Here’s how that works, according to J:
Items are eligible for supersaver shipping if you use Fulfillment By Amazon. FBA is where you have the items you are selling shipped to an Amazon warehouse and they actually ship the items for you. There is an additional fee for this service. Since Amazon is doing the shipping, they get breaks from USPS and UPS based on volume. We have had a couple of instances where we did well with an item and then someone started shipping by FBA and we could no longer compete. The FBA sellers tend to get the top spots on the reseller list too. We’ve thought about trying FBA, but it sort of comes down to finding the right item, where you can keep the margin reasonable since you are paying Amazon more.
This competitive environment is great news for the consumer, but not so good news for the small retailer. I’m glad I like shopping at Amazon and Target, because in the future those may be my only options. The bottom line, according to J:
It is a tough time for independent stores.