Independent businesses are significant drivers of competition, jobs, and economic growth in American communities. But by convincing consumers and policy makers they are more convenient, efficient, and affordable, large corporate retailers – from chains and box stores to online behemoths – have been negatively impacting Main Street retailers for decades, having a profound effect on local communities across the country and right here on Cape Cod.
Promises national retailers have made have rarely come true – independent retailers not only consistently compete on the basis of price, but also in offering higher quality goods, better service, and a greater diversity of products – nonetheless the corporate foothold on the retail market has grown significantly.
Big box retailers and ecommerce giants have one aim: to gain as much market share as possible, leaving smaller competitors like local boutiques, markets, corner stores and specialty shops with a little as possible. Their success in this aim is evident. Today, nationwide, Walmart captures $1 in $4 that Americans spend on groceries, Home Depot and Lowe’s together now have about half of home improvement sales, and a majority of shoppers looking to buy something online begin their search on Amazon, and the site captures about 50 percent of online sales.
The result of increasing concentration is a system that benefits a select few at the expense of everyone else, including consumers, workers, and independent retailers and suppliers. As Amazon, specifically, has grown, the number of independent businesses has fallen. Between 2007 and 2017, the number of small retailers fell by 65,000. About 40 percent of the nation’s small apparel, toy, and sporting goods makers disappeared, along with about one-third of small book publishers. It is estimated that 80,000 retail stores will shut across the country by 2026.
Right here on Cape Cod any further loss of local retailers would be devastating, as they return a total of 50% of all their revenue to the local economy, whereas national chain retail stores recirculate an average of 13.6% of all revenue within the local markets that host its stores. Purchases from online retailers not based on Cape Cod return virtually no money to the local community.
Nowhere is corporate concentration and power in the retail world more pronounced than in the market for groceries. In 2019, the top four retailers claimed 43 percent of all grocery sales. According to a white paper released by the National Grocers Association (NGA), their members “compete in markets that are increasingly dominated by a handful of national and international chains. These dominant chains wield tremendous economic power to the detriment of independent retailers and producers and the American consumer.” Corporations like Walmart use their massive buying power to dictate terms and conditions to suppliers, including negotiating priority with shipments and lower prices (harming small farmers and ranchers) and to shut independent grocers out of certain supply chains, limiting free market competition.
“Many independent grocers have struggled throughout the pandemic to stock must-have products—such as essentials like paper towels and toilet paper, cleaning supplies, and critical packaged foods like canned soup—while large national chains have exercised their buyer power to demand on-time, complete orders, and in some cases to secure excess supply.” the NGA stated, “In those months that small businesses struggled to keep products on their shelves, dominant retailers such as Amazon, Costco, and Dollar General posted their largest profits ever, and Walmart doubled the size of its e-commerce business.” To remain competitive and keep food prices as low as possible, independent grocers operate with a median net profit margin of about 0.7 percent.
Additionally, large corporate grocers tend to contract with equally large farms and food producers, limiting the growth of new food startups and entrepreneurial ventures. And if an independent company does manage to get into the grocery store, leading food corporations often have special privileges to decide where their competitors sit on the shelves.
For Brian and Monila Junkins, owners of Friends Marketplace in Orleans, their small business survival skills are invigorated by a passion for the grocery business and for their community. Although they acknowledge that at the end of the day their suppliers will “follow the dollars,” they also know that downtown Orleans is better off being anchored by a locally owned market. So, they need to be “nimble and find areas of creativity where there’s value added” for the customer, whether it is in prepared food, offering tastings and personalized service, competing on prices wherever they can, and by having an “ingrained community focus,” which includes stocking an impressive amount of locally produced artisanal food products, because as they both emphasized, “it’s our responsibility to showcase what’s happening on Cape Cod and to be accessible to local brands.”
The grocery sector is not the only place where big box stores have received preferential treatment from suppliers and participated in anti-competitive behavior to gain market share. Chain stores like Target, Home Depot, Lowe’s, Barnes & Noble, Office Depot and Best Buy, selling everything from books, to clothing, to hardware, to electronics, to office supplies all receive additional benefits from suppliers, which inevitably impacts independent retailers.
Snow’s Cape Cod, a store that has been in business on Cape Cod since 1887, has seen many of these chains come (and in some cases, go) and has evolved to meet changing consumer demand but also adapted to the kind of competition box stores bring. Snow’s Chief Executive Officer, Sid Snow, explained that when Staples came to town, they let go of their office supplies section and when Best Buy opened, they stopped selling electronics; over the past two decades they have moved away from the department store model they operated under for a century and have become a much more specialized home goods store.
Like the Junkins, Snow acknowledged that suppliers will naturally make provisions for the businesses who have the most buying power, but he did note that they might have to make adaptations to their products to meet the low-price requirements of the likes of Walmart. For example, Snow’s sells a gas grill this is seemingly the same product as those sold at Home Depot at a lower price. Upon close inspection a consumer would see they have a slightly different SKU because there are subtle differences in the quality of construction – the lower-priced box store grill is essentially made with cheaper parts and underperforms its counterpart.
Crystal Pieschel, Marketing Director of Mid-Cape Home Centers, which is celebrating its 126th year on Cape Cod, agreed with Snow that a customer is more likely to find better quality at an independently owned retailer. She went on to say that the customer service you will receive at places like Mid-Cape is far superior. Many of their staff have been with them for years – even decades- and have a “vested interest and an expansive knowledge of Cape Cod; this type of knowledge is essential when you’re buying home building supplies for a coastal environment.”
She went on to say that the commitment of locally owned stores is not just to stocking quality products and to offering good service to their customers, but they are also deeply committed to the community, partnering with local institutions like Cape Cod Community College and giving to over 100 different local causes doing their best to honor as many requests as they can. Generally speaking, this is not the case with big box stores.
It’s also not the case with Amazon, as the online behemoth’s bottom line depends on wealth being extracted from small businesses and local communities across the United States.
Since its founding in 1994, Amazon has engaged in exclusionary, anti-competitive pricing schemes to gain market power and illegally monopolize the e-commerce retail market. The company notoriously lost billions of dollars for years by selling products, like books, below cost to kill their competition and expand market share. The strategy only worked because their Wall Street investors accepted little or no profit in exchange for rapid market growth.
And their predatory tactics have paid off. From 2001 to 2018, Amazon’s sales grew from $2.762 billion to $232.887 billion. From 2000 to 2018, Amazon’s net income went from a loss of $1.411 billion to a profit of $10.073 billion. During the pandemic bookstore sales fell by more than twenty-eight percent and more than one bookstore closed every week, while Amazon’s profits increased by over 200 percent.
Their online dominance also allows Amazon to function as an ecommerce gatekeeper. At the same time a majority of small businesses see the company as a threat to their continued survival, retailers and brands feel they must sell on its site if they want to reach much of the online market.
Those small businesses that do sell on Amazon are met with more predatory practices such as collecting sellers’ data about their sales, costs, and suppliers to create its own competing versions of their products, compelling sellers to buy its warehousing and shipping services, blocking sellers from connecting with customers directly (they are not allowed to see the names or addresses of people buying their products), and by making it harder for them to generate sales unless they purchase additional Amazon services, including advertising. What’s more, Amazon’s third-party sellers have reported having their accounts suspended arbitrarily and their inventory and cash balances seized with very little opportunity to reach customer service to gain an understanding of the issue.
A local seller on Amazon Handmade has had one of their products taken off the site without a real explanation and recognizes that Amazon is a “business bully.” They continue with the relationship because it enables them to reach customers online which would be almost impossible for his business to do with a standalone website. He has attributed the success as a seller on the site to the fact that he and his partner manufacture their own products, but admits “for your typical small retailer, you’re always going to be undercut by someone who can pay more for ads [on the site] or use fulfillment by Amazon to get some sense of prominence – it impossible to compete at that level.”
According to a report produced by the Institute for Local Self Reliance, “Amazon keeps an average of 30 percent of each sale independent businesses make on its site and Amazon’s revenue from seller fees soared to $60 billion in 2019. These high fees make it nearly impossible to sustain a profitable business. Because of the rising cost of these monopoly tolls, ‘the vast majority of those who start selling on Amazon’s site fail within a few years.’”
Snow’s had an Amazon storefront for about nine years, but ultimately decided maintaining it was more of a financial burden than a benefit. In addition, Snow explained, they also experienced Amazon’s undermining behavior firsthand. When they found significant success selling toy trains on the site, Amazon began selling and distributing themselves, bumping up their listing so people defaulted to buying toy trains from them and no longer shopped online with Snow’s. According to Snow, this type of situation “happened quite a bit.”
Friends Marketplace, Mid-Cape Home Centers, Snow’s Cape Cod are not afraid of competition, but it’s hard for them and for independent retailers everywhere to compete when the playing field is uneven, and policymakers and consumers don’t recognize it.
To level out the playing field and preserve the small retailers that make our communities unique and economically sustainable, it will require stronger antitrust enforcement at all levels of government. The United States has a long history of passing legislation meant to preserve competition and reduce concentrations in market sectors. The Robinson-Patman Act passed in 1936 was intended to preserve the viability and diversity of smaller retailers by ensuring that the big chain stores did not engage in price discrimination and other unfair business practices. For example, it makes it illegal for suppliers to charge small retailers more than they charge the big chains for the same product.
But since the early 1980s the federal agencies that enforce the antitrust laws, have taken a hands-off approach and given corporations like Walmart and Amazon the freedom to use their size and financial power, and no other competitive skills, to consolidate and concentrate markets. It is time for the federal government to enforce the antitrust laws that were passed to structure markets to promote competition. This means aggressively enforcing restrictions on predatory pricing and buyer power, as well as breaking up companies who control a disproportionate amount of retail market share.
According to the NGA, Congress—on a bipartisan basis—and the public are increasingly understanding that effective and timely antitrust enforcement should promote and protect competitive markets, ensuring a level playing field and preventing large competitors from acting to disadvantage smaller rivals and depriving consumers of the benefits of competitive markets.
Federal and state governments are not the only ones with the ability to bolster the small retailers that reinvest so much of their dollars into local economies. Local and regional governments too have a role to play by eliminating subsidies paid to large retailers and examining their impact on communities. Additionally business owners like Sid Snow would like to see them invest more in organizations and programs that directly support local businesses.
Finally, if we want the local retailers in our communities to stick around and keep Cape Cod unique and economically viable, it is also up to the consumer to think and buy local first when making purchases for their home, garden, wardrobe, dinner table and bedside table.
This article is part of a year-long investigative series performed by CEO Amanda Converse that will explore how corporate concentration has affected various industries across the country and what impact that can and does have on Cape Cod’s local economy.