If you ask most small businesses “What’s the biggest threat to your business?” they’re likely to say “Amazon.” This is especially true for brick-and-mortar retailers, but Amazon is disrupting just about every industry. If your small business isn’t yet threatened by Amazon, it will be.
Now, Amazon isn’t the first big company to menace small businesses, especially retailers. If you go back 30 years or so, you’d hear downtown retailers complain about the coming of the mall. And 20 years ago, the big complaint was Walmart and other discounters. Then came the big box specialty stores—the huge hardware stores, sporting goods, office supplies, craft stores, and more. Many small businesses died as a result of those disruptions too.
But Amazon is a different kind of competitor. Here’s why:
- They didn’t have to make a profit. The stock market loved Amazon, and investors were patient as year after year they did not show a profit.
- They had another source of income. Amazon’s main source of profits comes from a source most Americans don’t know about: Amazon Web Services. AWS powers a huge percent of applications and websites.
- They have incredible reach. It’s estimated that three-quarters of American households now have Amazon Prime. This means even deeper discounts and faster shipping—as well as a whole lot of money coming in from Prime memberships.
- They had an unfair advantage. Until very recently, Amazon did not collect sales tax on sales to customers in almost all US states. This immediately gave them a built-in discount.
Now, let’s be fair. Amazon also provides many benefits for small businesses. Many small companies have been created and/or thrive because they are able to sell on Amazon.
But if you’re a manufacturer, be careful about how you sell on Amazon.
“It’s important for makers and small businesses creating consumer products to control the pricing of their products, or big retailers like Amazon or Walmart will set your market pricing for you,” advises Jules Pieri, co-founder & CEO of The Grommet. “Big retailers have demonstrated time and again that they compete with their own sellers, drive prices down recklessly, ruin businesses with their practices—all in the name of competing. Makers are ecstatic when they get a call from a buyer from Amazon or Walmart, but they are notorious for setting prices that are unsustainable for manufacturers.”
So how can a small business survive in Amazon’s world? First, don’t expect to beat them at their game. You are not going to be cheaper, not going to have faster delivery.
Here’s good news: independent bookstores are thriving. Independent bookstores have grown both in sales and in total number of stores. Partly, this is because customers still value the knowledge and passion of independent booksellers. But independent booksellers also took steps to survive.
What are lessons small businesses can learn about how to survive Amazon?
- Change your product mix. No longer will you find a large selection of computer or business books at your corner bookstores. Now, most local bookstores have large and exciting selections of children’s books, cookbooks, popular fiction—books customers like to hold in their hands or “discover” physically.
- Find a niche. Specialize in something so that you can develop devoted customers. Mystery, cookbook, children’s bookstores have all done well.
- Become a destination. Retail now has “entertainment” value. Events—lessons, parties, speakers, anything to engage children—draw customers in.
- Leverage technology. Reduce expenses and connect with customers through technology solutions and social media.
- Have a social mission. No one feels a sense of pride doing business with Amazon. Give customers a reason to feel good about doing business with you.
- Tell your story. One of ‘Rhonda’s Rules’ is “People do business with other people.” Be sure to let customers know who is behind your small business and what your passion is.
- Work together. Take a lesson from independent bookstores. The independent store across the street is not your big competitor, so work with them on local events and discounts and “Small Business Saturday,” and other activities to remind customers that you are a vital part of the fabric of your community.
Copyright, Rhonda Abrams, 2018
This article originally ran in USA Today on May 9, 2018
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