It Ain’t Necessarily So: The Internet Killed the Mom and Pop Shop

When I was nine years old I bought a paperback copy of Heir to the Empire by Timothy Zahn, a Star Wars novel that continued the story of the original cinematic trilogy long before George Lucas returned to sully his legacy with prequels, or Disney arrived to resuscitate it.  It wasn’t meant for me, it was to be a friend’s birthday present.  But when I brought it home, there was something about the smell of the thing that made me far more interested in the Star Wars extended universe than I had ever been before; I was halfway through by the time the birthday party arrived.  So I went back to the bookstore, the newest branch of a Toronto-based chain that had just opened in my neighbourhood that threatened the well being of the one book store that had already been there for years.  The chain was called Book City, which seems appropriate given the breadth of the chain’s territory; the little store was called The Book Barrel, which doesn’t even make sense.  And as I bought my second copy of the same book that week, I recognized that same smell, and it was coming from everywhere.

Book stores do not smell like libraries.  Over time, the cellulose and lignin in paper break down into organic compounds that produce the sweet, complex aromas of an old book.  New books, on the other hand, reek of the chemicals used to treat the paper, and that are in the ink and adhesive binding.  Not as romantic, to be sure, but it’s the smell that kept me coming back for the rest of the Zahn’s trilogy, and through most of the works of Arthur C Clarke, Michael Crichton, and Stephen King.

A Chapters opened up down the street several years later, and though the tiny hamlet of a chain called Book City would weather the competition, most small book retailers would not.  The selection was always bigger than most small stores, at least the one’s that didn’t specialize in any subject matter, but the big box retailers never smelled like books, they were filled with too many scented candles, calendars, and other assorted trivialities designed for people who like shopping at bookstores but don’t like books.

When the big box retailer had to start shutting down a couple of its more high profile stores around the country a couple of years ago, it felt like justice.  The reasons why were probably a lot more varied than I’d ever considered; skyrocketing rent, consolidating after a merger, it didn’t matter to me; this is the Era of the Internet, the Age of Online Shopping, and I was happy to see them close their doors while I could find almost any title I wanted, however obscure, on Amazon.ca.

Everyone likes a good story, and the one where Goliath beats the shit out of David, but later gets a heart attack because he’s just too damn large may not by the most well known archetype, but it’s the one that spoke to me.   And look around.  Where are all the bookstores?  Certainly it must have something to do with the fact that the world’s largest book retailer started stretching it’s tentacles distribution centres into Canada.  And book sales only make up a small portion of Amazon’s profits.  Should we not expect, the fate of all stores to be that of the Book Barrels of the world? (On second thought, what an aptly named relic; how many people even know what a cooper does anymore?)

This is, after all, the standard narrative that we hear. Silicone Valley vs Main Street in a cage match where only one challenger will emerge alive, and whether or not the fight is fixed, we all know who’s going to win.  It’s common sense, the Way of the World, and there’s nothing to be done about it; everybody knows that, right?

Perhaps. But the future is uncertain and “common sense” is an oxymoron; I’m certainly willing to accept the idea that somebody out there knows what’s going on, but I’m skeptical that it’s everybody.

So I was happy to come across an articulate counter-narrative, by Geoffrey A. Maine and Jennifer Maclean from The International Center for Law & Economics in Wired.

To begin with, the authors point out that Amazon and other online e-commerce companies are not the juggernauts they’re treated as:

…by 2016 e-commerce comprised just 8.3 percent ($102.7 billion) of the total retail market ($1.2 trillion). While that’s a big number in absolute dollars, it’s also less than the amount that retail sales regularly fluctuate due to changes in the weather. It hardly represents a “dominant” market share, nor one that portends the inevitable end of offline retail.

Of course, no one disputes that e-commerce in general, and Amazon in particular, is capturing an increasing share of retail sales: E-commerce is growing at over 14 percent per year compared to just 4.1 percent for all retail sales, and Amazon leads the pack.

And they concede that with new business models, come disruptions:

It’s also true that automation, robots, logistics software, payment technologies, and fulfillment innovations that are deployed to enhance efficiency and reduce labor costs tend to have their intended effect. As online commerce increasingly substitutes for physical retail sales, providing more choice and convenience at lower cost, the retail industry may well experience job losses.

But they go on to offer far more optimistic possibilities:

…the proliferation of ATMs between 1990 and 2010 meant that bank branches needed fewer human tellers, raising fears of pervasive job loss. But as costs dropped, banks were able to open more branches, and the job market for tellers experienced a net increase from its 1999 level.

If e-commerce platforms continue to appeal to buyers and sellers, this may mean fewer traditional retail jobs —or it could simply mean a shift in the types of activities performed by people in retail occupations. It might also mean more jobs in manufacturing, transportation, advertising, coding, and logistics, to name a few.

And while online distribution and automation may present certain challenges to traditional retailers, they also create significant opportunities. In fact, almost half of retail sales on Amazon’s platform are from third-party merchants who have chosen to sell their wares online instead of (or often, in addition to) through brick-and-mortar stores

…Today, Amazon hosts 2 million such merchants—in 2016, 100,000 of these sellers generated more than $100,000 each. While this certainly benefits Amazon, it also benefits small retailers and the workers they employ.

And while the majority of us aren’t retail workers, all of us are consumers. If innovations in e-commerce are accompanied by lower prices, expanded consumer choice, and new product innovations, these benefits accrue to all of us, not just the relatively few who work in retail—and help to ameliorate whatever job losses might occur in the short term.

There’s no reason to accept these rosy predictions, but the argument is compelling enough to introduce some nuance and uncertainty to what is often assumed an unavoidable fate. The effect Amazon has had on bookstores should not be overlooked, neither should one ignore the potential disruption to traditional delivery services behind their plans to deliver packages by drone.

And neither consumers nor third party vendors always get the best deal out of the new economy.

From the Toronto Star:

Amazon does give customers a chance to comparison shop, with a listing that ranks all vendors of the same item by “price + shipping.” It appears to be the epitome of Amazon’s customer-centric approach. But there, too, the company gives itself an oft-decisive advantage. Its rankings omit shipping costs only for its own products and those sold by companies that pay Amazon for its services.

But while the shopper is free to browse multiple offers from different vendors, Amazon’s algorithm directs you to pick one offer by default.

The costs of simply buying the algorithm-selected choice can add up. The average price difference between what the program recommended and the truly cheapest price was $7.88 for the 250 products we tested. An Amazon customer who bought all the products on our list from the buy box would have paid nearly 20 percent more — or about $1,400 extra — than if they had bought the cheapest items being offered by other vendors.

Merchants could improve their chances of being the algorithms pick by participating in the Fulfilled by Amazon program, the fees for which vary between 10-20% of sales depending on shipping costs, but those fees could be costly and prohibitive.

Regardless, the online shopping world is bigger than Amazon, and the relationships between vendors and distributors can fluctuate over time. But next time you’re doing your banking online, wondering what ever is to be the fate of the doomed ATM repairman if you keep up such habits, remember: nobody knows.

I highly recommend the Wired article, Sorry, But Amazon Isn’t Actually Annihilating Retail Jobs; they said it better.

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