How Amazon Prime could hurt small businesses.
Last week, Amazon introduced its Prime Now app to Portland. Our city joins 10 more where Amazon Prime members can place free, 2-hour delivery orders at popular local businesses — in Portland, participating stores include New Seasons Market, Uwajimaya, World Foods, and Cupcake Jones. And when you simply can’t wait for your Kombucha, cupcakes, and organic dish soap, a $7.99 fee buys you delivery within the hour.
The announcement spun me back a decade—to my years as the director of marketing and development at Powell’s Books, to the time when we went into business with Amazon.
By the early 2000s, Powell’s already had a business relationship with Amazon; like many booksellers, we posted our inventory on secondary sales platforms such as Alibris, eBay, and Amazon Marketplace. Then news came through back channels that Amazon didn’t know what to do with its overstock. Up in Seattle, they were sitting on thousands of recently published books that hadn’t turned out to be quite as popular as the company’s buyers had hoped. Apparently Amazon had better things to do with its warehouse space than store surplus copies of The South Beach Diet Cookbook. Powell’s did not.
Amazon started selling overstock to us by the pallet. Many pallets. Powell’s was unique among potential buyers in that we sold enough books to replenish in such bulk, and Portland is just a short drive down I-5 from Amazon. We made easy partners.
Those books quickly became our most profitable inventory. They sold much faster than used books, and at a far greater profit than new ones. Priced at a discount, a viable market existed for them. So Powell’s bought more and more. And then Powell’s bought more warehouse space to accommodate the more and more. Our dot-com and marketing teams moved from a 10,000-square foot building in the gentrifying Pearl District to a 60,000-square foot warehouse on the edge of the city. Our staff grew in order to handle all these books: receiving them off trucks, unpacking boxes, data entering and shelving, and then only a few weeks later pulling the same books from those shelves and packing them to ship. We got very good at all that.
We weren’t naive. No one doubted that we needed to diversify our inventory sources. We had no illusions about our business partner.
Trouble was, there were no other sources of such fast-selling books at such low prices. There was only Amazon.
And of course they stopped selling to us. Amazon realized that they could make more money by holding onto the books a while longer and selling directly to their own customers; and when they were ready, they did. But not until we’d invested in infrastructure and equipment, not until we’d hired staff, not until we’d scaled to serve customers who thereafter didn’t find many of the books they’d come to expect in our stores and at Powells.com. That sucked.
New Seasons is a beloved Portland-based grocery chain. I want it to thrive—for the city’s sake, for the employees’ sake, for all the charitable causes the company supports and because my eating life would be a total shambles without their prepared foods. So I can’t help wondering: What is New Seasons’ plan if Prime Now catches on? How will their model evolve to handle the growth? They’ll need new and expanded supply chains, right? What else? More warehouse space and staff? Will they ramp-up investments in technology? Can they maintain the superior food quality and best-in-town in-store experience?
The articles I’ve read haven’t mentioned how much money Amazon takes from each transaction through Prime Now, but you can bet it’s a healthy cut. That means that as the delivery app catches on, an ever-increasing proportion of New Seasons’ revenue will be generated at smaller margins.
And all of that revenue, day-to-day and quarter-to-quarter, will be dependent upon the functionality and features of the app, which no doubt Amazon will reinvent when and how it pleases.
I’d like to ask a publisher, or any of Amazon’s other so-called partners: How should these businesses protect themselves for the day when “The Everything Store” deems that it’s no longer in its best interest to make the partners as profitable? Or, worse and just as likely, once Amazon has established the local infrastructure and customer base to compete directly.
As a dedicated New Seasons customer, I hope they have a plan.