It is no secret that Amazon is a titan in the online consumer and retail industry, marked by its convenience, wide selection of products, reliability, and pricing power. These factors became of increased importance to many consumers in March of 2020 as the COVID-19 pandemic urged a global shift towards online shopping.
The pandemic shook economic institutions, and the stock market reflected this through high volatility and sharp declines in global stock prices. Amazon, however, not only survived but thrived during this period of turmoil. The company’s stock reached an all-time high trading price in the months following COVID-19 being declared a public health emergency [1]. As of the second quarter of 2023, Amazon’s reported net sales increased by 11%, from $121.2 billion in Q2 of 2022 to $134.4 billion in Q2 of 2023 [2].
Amazon’s triumph during the pandemic period is an example of a broader market shift to online shopping in the retail space. From 2019 to 2020, e-commerce traction increased by 29% in the United States. This positive growth is forecasted to continue, with projected cumulative industry revenue hitting $4,995 billion by 2029.
According to a study conducted in 2022, the drivers of continued e-commerce activity post-pandemic include convenience, efficiency, and even security; all contributing to consumer perceptions of the usefulness of shopping online [3].
The immediate implications of the pandemic and an increased reliance on Amazon among other e-commerce companies negatively impacted small businesses. Mass layoffs and employee displacement in small “mom&pop” shops were inevitable given the stagnant economy in the pandemic climate. A research study conducted by PNAS surveying 5,800 small businesses showed that nearly 43% of businesses temporarily closed due to the pandemic, highlighting the severe impact of increased reliance on e-commerce giants like Amazon [4].
As the study notes, many small businesses were unaware of just how long the lockdown would last. The duration of the crisis and the planning for said duration played a considerable role in the confidence of small business owners about whether or not they would be able to keep their doors open. Of those forecasting that the crisis would only last for one month, 72% believed that they would be open for business by the end of 2020, while of those who predicted that the lockdown would endure for four months, the confidence for predicted outlasting success fell to 47%4.
Yet here we are in 2024, and small businesses are still reeling from the impacts of the pandemic. These groups were disproportionately impacted as compared to larger firms given their lack of resources such as financial and physical capital, as well as limited geographic diversity, legal structure, and poor ability to respond to crises of the magnitude that a global pandemic was. Between March to August 2020, the number of permanent business closures increased from 36,718 to almost 100,0005.
Small business success is critical to the overall health and well-being of the economy, given that as of May 2023, small businesses comprised 99.9% of all firms and created 10.5 million net new jobs between 2000 and 20194. Therefore, understanding the impacts of the dramatic shift to e-commerce retailers such as Amazon on small businesses is important to deliberating on how the economy can recover and reinvent itself in the wake of the pandemic.
Founded in 1994 by a young Princeton graduate, Jeff Bezos, Amazon, formerly “Cadabra,” was launched with the intent of selling books to all 50 states and 45 countries from a small garage space in Bellevue, Washington6. The company began to extend its product offerings beyond books in 1998, and it was at this time that they began to turn a profit.
One of the most profitable components of Amazon’s business model is its “Amazon Prime” subscription which provides members with unlimited two-day shipping. Currently, there are approximately 200 million Prime members; a figure that is representative of 2 in 3 internet users in the United States [7]. That is, 67.1% of all internet users in the United States are frequently using Amazon’s Prime subscription services.
Another considerable contribution to the large profit margin Amazon boasts is the sheer amount of purchases made on the site. According to the latest statistics, Amazon receives roughly 9-10 million orders per day, culminating in an approximate 3.5 billion per year [8]. An amount that size is nearly unfathomable.
So what does this mean for the small businesses? Amazon certainly represented a safer (inherently socially distanced) method of purchasing consumer goods during a period when people were forced to substitute hugs with hand sanitizer and face masks became a fashion statement. But in 2024, a sniffle wouldn’t exactly make me consider self-quarantining. However, things will never fully be “back to normal,” and the retail industry, specifically for small and medium-sized businesses is an accurate example of that.
In response to allegations that Amazon is “killing small businesses,” the company contends that in fact it is helping them to reach a broader audience. With nearly 2 million small and medium-sized businesses operating on Amazon, members of the C-suite like Jeff Wilke maintain that Amazon wants these third-party sellers to thrive and in turn, benefit more customers in the process [2]. As made clear on the Amazon website, the e-commerce site maintains initiatives that invest in the success of small businesses, such as Amazon marketplace which provides virtual shelf space for third-party sellers to grow their online sales [9].
While Amazon contends that it has a “mutually beneficial” relationship with the small businesses that rely on its platform, the small business owners shared a different story. In a survey conducted in 2019, 3 out of every 4 participating retailers said that they view Amazon's “monopoly gambit” as a threat to their success [10]. Given the triumphant market share that Amazon controls, small business owners are forced to sell on its online market platform. To quote Chris Lampen-Crowell, owner of Gazelle Sports in Grand Rapids, Michigan: “If the customer is on Amazon, as a small business you have to say, ‘That is where I have to go.‘ Otherwise, we are going to close our doors.”
One might argue that the relationship between Amazon and its 3rd party sellers is more parasitic than mutualistic. On average, Amazon keeps roughly 30% of each sale made by independent businesses, with its revenue from seller fees equating to over 90 million in 2019 alone10. Further evidence suggests that Amazon harvests seller data to produce its own competing products that force small businesses out of business [11]. House Judiciary Antitrust Subcommittee chairman David Cicilline recounts, “We have heard so many heartbreaking stories of small businesses who sunk significant time and resources into building a business and selling on Amazon, only to have Amazon poach their best-selling items and drive them out of business.”
Moreover, Amazon has demonstrated an algorithmic favoritism towards 3rd party sellers that use Amazon warehouses and shipping services which prove in many cases to be more expensive than outsider delivery providers [10]. For instance, the third-party sellers that do pay for these additional services in operating on Amazon and become “Fulfillment by Amazon” (FBA) approved will show up more readily for viewers.
The truth of the matter is, even when small businesses have an online presence, they are overshadowed by this e-commerce giant. This endangers one of the greatest and time-old demonstrations of innovation: entrepreneurship. According to a study from Lendio that surveyed over 350 small business owners, 49% believe it’s harder to achieve ownership of a small business than it was in the past [12].
Ultimately, if Amazon maintains its daunting hold on the retail space, there will be little room for any past, present, nor future competing forces. With the COVID-19 pandemic serving as a catalyst for the transition to online and e-commerce presence, it is even more pressing that governing bodies such as the Federal Trade Commission (FTC) enact legislation that prevents competitive behavior and enforces antitrust expectations.
On September 26, 2023, the FTC, alongside 17 state attorneys general, initiated legal action against Amazon, accusing the e-commerce giant of monopolistic practices13. The lawsuit alleges that Amazon has engaged in a series of anti-competitive and unfair strategies, effectively consolidating its monopoly power in the online retail sector. The FTC's argument centers on Amazon's sophisticated, algorithm-driven pricing model, which, according to the regulatory body, systematically impedes competitors' ability to contest Amazon on equal footing [13]. The legal challenge does not take issue with Amazon's scale, but rather targets the company's exclusionary tactics that suppress competition, hindering rivals from competing effectively in terms of pricing, product assortment, and quality.
Looking to the future, Amazon's dominance in the retail sector, highlighted by the shift towards e-commerce during the COVID-19 pandemic, represents a pivotal shift in consumer behavior and the competitive landscape. This shift raises important questions about the future of small businesses in a digital-dominated market. The ongoing legal scrutiny of Amazon by the FTC and state attorneys general, accusing it of anti-competitive practices, may signal a turning point in antitrust enforcement. This could redefine fair competition and address monopolistic dominance in the digital age, potentially reshaping the future of e-commerce.
This also prompts a critical examination of digital platforms' roles in fostering a competitive marketplace. Amazon's responses to these challenges will be indicative of the broader e-commerce industry's direction and its impact on entrepreneurship and market diversity. Overall, the conflict between Amazon's growth and the survival of small businesses, underpinned by regulatory interventions, encapsulates the broader narrative of adapting to a digital economy. The outcomes of these confrontations will influence not just the retail landscape but also the principles of innovation, competition, and fairness in the digital marketplace, setting a precedent for how we support a diverse and equitable economic ecosystem in the era of digital monopolies.
All content is the intellectual property of the Virginia Undergraduate Business Review.
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