Practical Ecommerce

No, Your Small Business Cannot Compete with Amazon

Amazon, Walmart, Target, Costco, and other large retailers have competitive advantages over small ecommerce or brick-and-click businesses, making it difficult to compete on identical products. But this does not mean that small businesses cannot be profitable and successful.

Competing with ecommerce behemoths like Amazon is a popular topic in the retail community. Practical Ecommerce receives countless press releases and pitch emails describing how a new platform, new tool, or new technique will allow small ecommerce businesses to compete with Amazon and the like.

Some of the pitch letters we receive imagine that Amazon, Walmart, and similar companies are small business killers, crushing mom-and-pop shops with extra low prices and superior logistics. They imply that these companies have unfairly usurped retail and the only way to attack and slay these monsters is to use the solution the letter is promoting.

In truth, many, if not most, small retail businesses online or off don’t really need to compete with Amazon or Walmart. They probably should not even try.

Large Retailers Have a Competitive Advantage

If your small-or-medium sized ecommerce business is selling a product identical to one that Amazon carries, Amazon likely has several competitive advantages over your business. This is especially true if you are “selling” in the traditional retail sense.

Because Amazon is both a retailer and a marketplace, you can buy items there directly from Amazon or from a third-party retailer, and, thus, see examples of these competitive advantages.

If you are selling an identical product and competing in a traditional retail sense, Amazon has significant competitive advantage.

If you are selling an identical product and competing in a traditional retail sense, Amazon has significant competitive advantage.

On December 1, 2016, four merchants on the Amazon marketplace were selling six packs of black, Adidas men’s athletic crew socks for shoe sizes six to 12. These merchants included Amazon, Botach Tactical, ShoeMall, and Soccer Firm.

Amazon offered the lowest price for the socks at $14.89. The highest price was $18. While these retail prices do not tell us what Amazon or any of these merchants pay (wholesale) for these socks, Amazon presumably believes that it can meet its sales and profit goals selling this package of socks for much less than its smaller competitors. This ability to offer a lower price is a competitive advantage.

Amazon is making two free shipping offers. Amazon Prime members will simply get free shipping. Other Amazon customers will get free shipping with a total order of $49 or more.

While two of the other sellers are also making free shipping offers, Amazon’s is better. Prime members who ordered on December 1 would likely receive the socks by no later than December 5 and some Prime customers could receive the socks by December 2 or 3. The earliest expected delivery date for the socks from other sellers was December 7.

Amazon has a much larger and more developed fulfillment infrastructure. The company is built to rapidly pack and ship orders. There are few occasions when a small retailer will be able to ship more efficiently and inexpensively than Amazon.

Sell Different or Protected Products

Given these advantages, it can be very difficult to compete with Amazon, Walmart, and other large retailers on identical products.

Rather than trying to sell directly against Amazon, small-and-mid-sized retailers may want to either sell different products not typically found on Amazon and similar sites or sell products that are, in a sense, protected with manufacturer approved pricing — MAP.

For example, if you wanted to purchase Topman White Cactus Badge Tube Socks, you would need to buy them from Topman. You cannot find them on the Amazon site or on the Walmart site. Thus, Topman does not have to compete with Amazon directly.

Topman sells socks that Amazon does not. While the two companies do compete in the sense that both sell socks, Topman has a way to differentiate and thus does not experience the full weight of Amazon's competitive advantages.

Topman sells socks that Amazon does not. While the two companies do compete in the sense that both sell socks, Topman has a way to differentiate and thus does not experience the full weight of Amazon’s competitive advantages.

Certainly, there is competition in the sense that both retailers are selling socks, but there are differences in the products offered. Topman does not need a lower price for its socks since Amazon is not offering an identical product. Topman does not have to compete against Amazon’s logistics because it is not selling an identical product.

Similarly, an online store that sells custom t-shirts does not have to compete directly with Amazon or Walmart. While all three — the t-shirt retailer, Amazon, and Walmart — will compete in the sense that all sell t-shirts, they do not compete for a particular shirt. For example, the Double X Colorful Offset Men’s T-shirt shown in the picture below is not available from Walmart.

While many online retailers sell t-shirts, no other retailer sells this particular design.

While many online retailers sell t-shirts, no other retailer sells this particular design.

Sell Products in a Different Way

You can also sell products differently than Amazon or Walmart.

BarkBox is a subscription service offering a monthly selection of curated dogs treats and toys. Each month, BarkBox customers receive a themed collection of items for their beloved pet.

BarkBox sells some of the same products that other stores like Amazon or Walmart do, but it sells those products in a different manner.

BarkBox sells some of the same products that other stores like Amazon or Walmart do, but it sells those products in a different manner.

In a given month, there will be between four and six items in the BarkBox. Some of these items will be unique to BarkBox. But many are items you can buy from large retailers like Amazon. For example, recent BarkBox shipments have included Sojos brand dog treats, which one can buy from Amazon.

Amazon and BarkBox both sell, in a sense, Sojos dog treats,. But consumers shop with BarkBox for different reasons than shopping with Amazon.

Amazon and BarkBox both sell, in a sense, Sojos dog treats,. But consumers shop with BarkBox for different reasons than shopping with Amazon.

Nonetheless, BarkBox is not really competing with Amazon, because it sells differently than Amazon. While it is true that both sell identical products — Sojos treats, for example — what BarkBox subscribers are buying is fundamentally an experience, not a product.

GORUCK sells rucksacks, gym bags, fitness gear, and apparel. In general, shoppers can buy similar items from Amazon, but GORUCK doesn’t really compete with Amazon. In fact, GORUCK has, in part, built its business around customer relationships. The company hosts military style training events.

GORUCK's training events allow it to connect with its customers on a personal level.

GORUCK’s training events allow it to connect with its customers on a personal level.

GORUCK customers have personal relationships with the company. They have, oftentimes, been to GORUCK events and met GORUCK instructors. When they buy a rucksack they are not comparing specs or shipping estimates. They are, instead, buying from a trusted advisor and expert in the field.

Competing Differently

The ecommerce industry likes to talk about competing with Amazon and other large retailers. Some would even demonize them for using their competitive advantages like price and logistics. But these companies are really just using their strengths to serve customers.

Small-and-mid-sized retailers can also play to their strengths. They can find success and profit without trying to outsell a larger, better-equipped competitor.

Armando Roggio

Armando Roggio

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  1. Elizabeth Hollingsworth December 4, 2016 Reply

    Great article, Armando. Since your – and my – small business cannot compete with Amazon, look for items which Amazon cannot easily provide.

    These items are custom-made, bespoke and/or personalized and therefore NOT available to the masses.

    Or items people can collect from your business with free local pickup.

    Or items which are rented.

  2. Andrew Hemingway December 4, 2016 Reply

    Well said and great points! Thank you

  3. Ceara Sullivan December 4, 2016 Reply

    Grommet offers products from a variety of small entrepreneurs. Like all such places, it has some useful/good products and some that are less so. It has fora that introduce the seller/maker…but caveat emptor and look for their free shipping offers.

  4. Steve Gable December 23, 2016 Reply

    Like most, I am trying to make it as an online shopping mall through affiliate programs

  5. Howard Packaging January 31, 2017 Reply

    Good stuff, Armando. We just wrote a similar piece on how smaller businesses can survive alongside the giants like Amazon. We also came to the conslusion that it really isn’t about competing directly, because you just can’t win that way. But finding ways to sell products in a different way or sell different products, as you say, can work if you can think of a way to stand out. For instance, becoming a “customer focused” company can help a business stand out in a crowded industry. http://www.howardpkg.com/blog/how-to-survive-as-a-local-business-in-the-age-of-amazon

  6. Max April 6, 2017 Reply

    This was the reason I moved to downloadable ecommerce software. Fed up with selling on overcrowded market where everyone is selling the same products “in different ways”. Now I have my own online store with a welcome sign and a storefront which I want. Yes, I have lost some clients, but now my business has a face, which is precious!

  7. LoveWorks.com August 20, 2017 Reply

    You are 100% spot-on regarding the advice to sell what products that have been protected from Amazon.

    You mentioned prices — and how Amazon hopes to sell volume which is why they lower the retail price. But what you are not mentioning is that Amazon has gone a step beyond that.

    In our industry, the big distributors (Doc Johnson, Cal exotics, Pipedreams and Nasstoys) are selling in volume to Amazon and allowing Amazon to sell AT OR NEAR WHOLESALE!

    To put this in a different light — customers are able to buy many of the same products we sell at WHOLESALE from Amazon. They are being allowed to buy at the same cost that we must pay.

    The adult industry is greedy, and hasn’t caught up to the mature practices of MAP. They aren’t paying attention to what many others (like Sony and BestBuy) are doing — restricting sales or requiring Minimum Advertised Pricing on its products — which would allow everyone to sell on a level-playing field.

    I wish more adult stores would join in the fight to pressure suppliers to stop allowing Amazon to sell “wholesale-to-the-public”. It is cheapening the products, the industry, and destroying local business – as well as local employment.

    I support #localbusiness — and I always will. Drive around your town and imagine what it will be like when half the stores are gone.

  8. Leslie November 11, 2017 Reply

    As LoveWorks.com said, Amazon selling at wholesale or very near wholesale is THE problem with Amazon. It affects all product types. It is why I will not sell there. If companies would have the decency to their sellers of requiring MAP pricing, then multiple sellers would have a chance to be retailers for their products. Between Amazon selling at wholesale, and the manufacturers/originating companies selling at wholesale, anybody who has to resell the product as a retailer can not make a profit. The whole situation is just made worse by the rampant problem of knock-offs and overseas sellers.