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Amazon and Small Businesses: Friend or Foe?

Recently, Jeff Bezos and Amazon became the latest target of Trump Tweets for, among other things, the negative impact the mega online retailer has had on shopping malls and brick-and-mortar Main Street businesses. While some pundits claim Trump’s true motivation for the Tweets was anger for unfavorable  coverage from the Washington Post, also owned by Bezos, the content of Trump’s criticism has put a very important question in the marketplace of public opinion.  Is Amazon hurting or helping small businesses?

Amazon & Small Businesses: Friend or Foe?As it turns out, the answer is…yes.

In 1994, 30 year old Jeff Bezos was working on Wall Street when he told friends he wanted to start a business that “would grow big fast”. At that time, the Internet had 5 million users.  But Bezos, described as a nice but reserved and “rather odd man”, saw one figure that grabbed his attention: the number of people online was increasing by 2300% every single year.

By 1995, when Bezos started Amazon for the primary purpose of selling books, there were 16 million people online.  By 1996, there were 36 million, and it’s been increasing ever since with now a reported 1.3 billion users.  In other words, one out of every four people in the world is online. And Amazon—that  has since expanded into selling health and personal care products, home products, electronics, furniture, beauty products, jewelry, apparel, sports equipment and toys—is right there, ready to welcome users to the “new world”.  

Did Bezos find his business that would grow big fast?  Uh…yea. You could say that. So, just how big is…big?   

Although the company is historically reluctant to release specific data about numbers of users, let the figures that are known speak for themselves.  Please note that some data are educated estimates and are more current than others.

As of March, 2018, Amazon has 708 active facilities worldwide.  Of that 708, 328 active facilities are in the United States and occupy warehouse space totaling 122,141,851 square feet. There are plans to add 41 U.S. facilities in the near future with an additional 31,761,269 square feet.  

In Colorado, there is currently one fulfillment/distribution center in Aurora the employs 1,000 associates in a warehouse that contains 1,000,000 square feet.  A second center in Thornton is scheduled to open in August with a warehouse that has 855,000 square feet and employs 1,500 people.

It’s estimated that Amazon currently has more than 325 million users. In April, Bezos stated in an interview with NPR that there are now more than 100 million subscribers to Amazon Prime, which equals 51% of households in the United States. A membership to Amazon Prime currently costs $99 a year but will increase to $119 in October.  

The company’s net sales income in 2017 was $177.9 billion; their net income for 2017 was $3 billion. That’s an increase of 32% in net sales and 25% in net income compared to 2016 figures, which were $136 billion and $2.4 billion respectively.  Net income for the first quarter of 2018 was $1.6 billion.  

Their largest week in sales to date was 2017 Cyber Week when 140 million items were sold.  Last year, the company also captured 45% of online holiday retail sales and spent $21 billion in shipping over the 12 month period.

Okay.  Enough numbers.

You don’t have to be a whiz kid to recognize that Amazon is not just big, it’s gigantic.  And there’s no doubt that retailers have taken a major hit in recent years, especially large retail chains.  In the first quarter of 2017, 6700 retail chain stores closed. But the threat is not from Amazon alone.  WalMart is certainly responsible for a significant share of the damage as are, albeit to a lesser degree, other online retailers like EBay.  Nonetheless, it’s estimated that—in employment figures alone—Amazon helped to eliminate 149,000 more jobs than it created in its warehouses.

So, there’s the answer to the question.  Amazon: friend or foe to small businesses?  Foe! Foe! Right? Well, sorta yes, sorta no.  

In a report that was compiled and released by Amazon several weeks ago, the company paints a somewhat different picture that addresses two of the major complaints that have been made: negative impact on small to middle sized businesses and failure to pay state sales tax.   

“Small business” cannot be described as a single thing any more than “business” can be described in those terms.  It’s difficult to measure the impact of a single business on such a large, loosely defined industry.  Even so, as much as Amazon may play a role in the demise of some small businesses, the company is growing a similar industry within its own operation.

A significant part of the Amazon “empire” is made up of small to medium sized businesses (SMBs) that sell their products through Amazon Marketplace, a fixed price, online marketplace where sellers can sell new and used products alongside Amazon products.  In their report, Amazon states that, as of 2018, half of their orders are generated by SMBs which are located in all 50 states in the United States.  In fact, Colorado is one of the top 10 states Amazon describes as “entrepreneurial”—meaning the state is the location of a significant number SMBs.

That segment of Amazon is growing at an extraordinary rate with the company reporting that 300,000 U.S. based SMBs joined Amazon Marketplace in 2017.  Also, it turns out, SMBs on Amazon have the potential to be very lucrative, as well.  Of the more than 1 million third party sellers, Amazon reports that more than 20,000 of those SMBs generated more than $100,000 in revenue in 2017.  A survey conducted by Insureon and Manta, more than two thirds of those surveyed said that Amazon had positively impacted their sales.  Of that two thirds, 63% said Amazon had moderately to significantly increased their sales.

However, of those surveyed, one third said being listed on Amazon had not impacted their sales. Can’t ignore that.

Amazon also has support services for SMBs that are available, including web services and tutorials on blogging.  This seller support might contribute to the 73% of SMBs surveyed reporting that selling on Amazon helps them to feel “more confident”.

When it comes to sales tax, that answer is a mixed bag, as well.  For years, Amazon did not pay sales tax in states where they did not have a physical location, a practice that was upheld years ago in the Supreme Court.  Then, in 2016, they agreed to collect and pay sales tax in all those states that have sales tax in place, which totals 45 states plus the District of Columbia.  However, Amazon does not collect state sales tax on orders placed for third party sellers, which, as just stated, is a significant portion of their business.

So, what does all this mean for the people living in Southeastern Colorado where businesses on Main(e) Street are already struggling?

THUMBS UP? THUMBS DOWN?

The answer to that question is slap-us-in-the-face obvious.  Yes, Amazon is so huge it can frequently provide a greater choice and, sometimes, at a lower cost.  And, yes, sometimes, it’s the only option for certain items outside of a several hour drive to the city.  

However, there’s a very real, very tangible cost to automatically buying off Amazon when local retailers can provide same or similar goods at a faster rate. And, very often, if they don’t have the product in stock, they can order it with customers getting it no later than Amazon delivers.  Plus, local businesses have something Amazon doesn’t—and never will—offer:  doing business in person and face to face with a merchant who knows his or her customers, including that customer’s preferences.  

Let’s face it.  Business people in Southeastern Colorado aren’t in business as a hobby; they have to turn a profit in order to pay salaries and benefits.  Not enough customers = not enough profit = inability to stay in business.  And a town without businesses doesn’t continue to be a town for long

Also, buying local assures that the town can collect sales tax which, in turn, assures that the infrastructure—i.e. roads, water, sewer, all those things we take for granted every single day—continue to be offered.

But, if a person must shop on Amazon, at least consider going to Amazon Smile, a program where Amazon gives 0.5% of the price of a purchase to the customer’s choice of charities.  (You have to register first.)

And, for those small businesses that make up the core of our commercial districts, selling on Amazon might be an option worth considering.  

With all these facts and figures, perhaps there’s one thing that bears the greatest long term consideration.  In the words of the great Joni Mitchell, “Don’t it always seem to go, you don’t know what you’ve got ‘til it’s gone.”



And, as Joni Mitchell once said, “Don’t it always seem to go, you don’t know what you’ve got ‘til it’s gone.”

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