By Michael Howell
Small town downtowns have become a thing of the past in many areas of the country where they succumbed to a pattern of traffic-oriented strip mall development along the roads going into and out of the communities. The highly successful 35-year old Main Street America program (http://www.mainstreet.org/) was developed to help these downtowns hold their ground in the tug of war between the Big Box developments along the strip and the small, usually independent, and locally owned businesses that form the heart of most downtown business districts.
And then came the internet.
From the perspective of a downtown retailer, you could call it strip-mall development on steroids. But it wasn’t Big Boxes on the edge of town luring their customers away, it was an amazing number of “virtual” shops in the Cloud. Or at least that’s how it first appeared to many small-town brick and mortar businesses across the country.
But a recent report from the Institute for Local Self-Reliance (ILSR) indicating that the mob of competitors offering wares similar to yours in the online market is not your major threat. It is the company providing the “virtual marketplace” itself that you should really be concerned about.
In August the ILSR released a report detailing the incredibly extensive and growing reach of Amazon’s mostly “invisible” domination of the marketplace.
Titled “Amazon’s Stranglehold: How the Company’s Tightening Grip Is Stifling Competition, Eroding Jobs, and Threatening Communities,” authors Olivia LaVecchia and Stacey Mitchell, both researchers with ILSR’s Community-Scaled Economy Initiative, outline in 79 pages how the company is reshaping the economy in ways that hurt small businesses, reduce jobs, and weaken community bonds.
One local retailer, Shawn Wathen, owner of Chapter One Bookstore in Hamilton, is probably more aware of how Amazon can impact a local brick and mortar retail business than most because Amazon started out, in 1995, by selling books and quickly became his most serious competitor.
We learn in the report that in 2000 Amazon opened its internet platform to third-party sellers and began using the sales data produced to literally take over the market by identifying the best sellers and then creating their own competing product and selling it at below cost.
But the company is much more than an aggressive retailer. In 2002 it launched AWS, which by 2016 would control one third of the world’s cloud computing infrastructure.
“Amazon increasingly controls the underlying infrastructure of the economy,” states the report. “Its Marketplace for third-party sellers has become a dominant platform for digital commerce. Its Amazon Web Services division provides the cloud computing backbone for much of the country, powering everyone from Netflix to the CIA.” Its distribution network includes warehouses and delivery stations in nearly every major U.S. city, and it’s rapidly moving into shipping and package delivery for both itself and others. Not only that, it now processes payments for other e-commerce businesses, it makes restaurant deliveries, it rivals HBO and NBC in producing television and movies and it manufactures thousands of products from blouses to batteries to baby food. It’s even moving into the grocery store business and, ironically, opening thousands of brick and mortar stores, including hundreds of bookstores.
The report states that Amazon’s business model does not produce jobs because it eliminates far more than it ever produces. By 2015, its growing market share had caused more than 135 million square feet of retail space to become vacant. According to the report, Amazon has eliminated about 149,000 more jobs in retail than it has created in its warehouses, and the pace of layoffs is accelerating as Amazon grows.
The report notes that “work in Amazon warehouses is exceptionally grueling, yet the company pays its fulfillment workers 15 percent less on average than other warehouse workers in the same region earn.”
To top it off, the report states, the brick and mortar retailers driven out of business, which includes the downtown retailers and the Big Boxes, are being replaced by a retailer that has no local property and pays no local taxes. In 2014, retail vacancies triggered by Amazon resulted in a drop of $420 million in property tax revenue for cities and counties.
Regarding federal taxes, the report states that back in 2003 Amazon opened up an office “in the tiny tax haven of Luxembourg and, over the next dozen years, skirted paying at least $1.5 billion in U.S. taxes…”
But it’s not just the loss of tax revenues. A portion of every local retailer’s profit and the wages it pays out go back into the community, while Amazon’s removes it from local circulation. This creates a ripple effect throughout the community affecting everything from support for school sports to support for the local fire departments. It means the weakening and potential dissolution of the community.What makes all of this especially hard to swallow for a small business on Main Street is the degree to which this incredible monopoly of the retail market and community dissolution has been enabled by taxpayer-funded subsidies. According to the report, Amazon at one time received $61 million in subsidies to open up a fulfillment center in South Carolina. That was just one of dozens of such deals.
To achieve a more competitive and equitable economy, the report’s authors suggest that policy makers should restore the broader range of goals that guided antitrust enforcement for much of the 20th century, and use these policies to divide Amazon into separate firms, prevent it from using its financial resources to capsize smaller competitors and ensure fair and open competition on its platform. According to the report, Amazon today controls nearly as much of the book industry as Standard Oil controlled of the oil industry when it was broken up in 1911.
They also advise local and state governments to “revise their planning and economic development policies to reflect the fiscal and community benefits of local, independent businesses.”
Reading this report got Wathen thinking about his own local government and what their policies might be. He decided to start by finding out how much Ravalli County was spending with Amazon. Upon making an inquiry he was informed that Amazon was not listed as a vendor, so some research would have to be done to come up with the amount by examining credit card purchases, etc. The cost of providing the information was estimated at about $112 and Wathen was told he would have to pay half that cost up front before they did the work. Wathen talked it over with friend and fellow Main Street business owner just down the street, Al Mitchell, owner of the Paper Clip. They agreed to make the request and split the cost.
Mitchell said their plan was at some point to go to the county commissioners and ask them to support a policy of buying local.
“It’s pretty obvious that everybody in the brick and mortar retail business, big and small alike, is in trouble,” said Mitchell. He said it comes down to a choice between the convenience of click-button shopping versus investing in your community by buying local.
“I’d like them to support local,” he said, “but they always say they are saving the taxpayers money.”
That may not always be the case though, as the ILRS report notes and as the commissioners’ expense report may also indicate.
Al’s son, Dan, who manages his father’s store, had received a copy of the county’s payments to Amazon for the past year and it totaled about $15,000.
He said he couldn’t really comment in any substantive way on the information because he hadn’t had a chance to analyze it. But, given his business in office supplies, a couple of things jumped out at him. He said it appears the county was purchasing copy paper from Amazon for $12 per ream when it was available at the Paper Clip for $8.50.
“They didn’t even buy their paper clips from The Paper Clip,” he said.