The Widening Gap Between eCommerce Giants and Small Businesses as a Result of the COVID-19 Pandemic
The COVID-19 pandemic, which started in 2020 and is debatably ongoing, has had far-reaching effects not seen since the influenza pandemic from 1918 to 1920. Finding an aspect of daily life that was unaffected by the pandemic is a difficult task. Simple processes such as going to school or work were turned upside down, and obtaining basic necessities like food became tedious. While most of the world was focused on keeping their jobs and staying safe, small businesses were largely forgotten. With the unprecedented emergence of e-commerce during the pandemic, small businesses could soon be an element of the past.
The simultaneous rise of e-commerce giants like Amazon with the fall of small brick-and-mortar stores has been well documented. Customers are regularly forgoing shopping at physical stores to shop online, choosing to ship goods directly to their homes. According to the International Trade Administration, 13.6% of retail sales were done online in 2019, before the pandemic started. Just five years later, this number has nearly doubled to 21.8% in 2024 (International Trade Administration 2024). Unsurprisingly, the revenue of corporations that rely on e-commerce has also benefited from this surge in online shopping, with worldwide e-commerce revenue rising by 19% over the same five-year period. This increase in online shopping has brought more revenue to almost all markets, though food and personal care products are responsible for increasing total revenue across all markets by 26% (International Trade Administration 2024).
While the COVID-19 pandemic has undoubtedly played a large role in the rise of e-commerce, the transition from physical shopping to online shopping would have likely taken place anyway. Online shopping blows physical shopping out of the water in terms of convenience for a multitude of reasons. To start, navigating online stores is far easier than walking around a department store. While looking for a specific item online only takes a few clicks, shopping in-person might require browsing for ten minutes across the store. Next, customers can log onto their computers and shop online for products and services that are listed around the clock, without having to leave the comfort of their own home. Without store hours to work around, products can be ordered at any time or place. Also, shopping online allows customers to compare prices at a much faster rate. When comparing prices at different stores, consumers can just switch tabs, a process that takes seconds at most. Lastly, there are more payment options online, than in-store. In addition to all of these reasons, small businesses do not have the scale and capabilities that e-commerce giants do, such as the ability to ship from large warehouses to anywhere in the country.
While the convenience associated with e-commerce giants separates them from small brick-and-mortar stores, what really matters is whether or not this convenience is important to the consumer. In a study conducted by Supermarket News, 82% of shoppers said they believe that convenience is ‘very important,’ while this number rises to 87% for millennials (Supermarket News 2023). When it comes to deciding where to shop, convenience is held in high regard for shoppers, with 40% of them saying that it is in the top two decision-making factors. When asked more in-depth questions about e-commerce, the shoppers revealed that the biggest appeal is the fact that customers are not bounded by store hours, so they can shop whenever they please (Supermarket News 2023). To consider this in more quantitatively, 43% felt that online shopping is easier and more convenient than shopping in person, meaning that just over half of shoppers would prefer to shop at a physical store than online. All of these figures negatively impact small businesses’ bottom lines. The business that e-commerce giants can attract away from small businesses will lead to a smaller profit for those businesses. Smaller profits equate to less money devoted to salaries and inventories. Businesses that can no longer afford to pay their employees and buy new inventory will not last very long. Smaller profits lead to layoffs and closing doors.
With the gap between e-commerce giants and small businesses seemingly widening, how can small businesses make up the lost ground? One element of small businesses that e-commerce giants would be hard-pressed to match is personability. The transaction of buying from a large corporation like Amazon is simple and clean, but lacks personality. Additionally, social media sites, including TikTok, Instagram, and Facebook, provide small businesses with an opportunity to appear personable by connecting with their customer base by posting about new products or limited-time deals (Montenegro 2021). However, posts on major social media sites can easily be overlooked, or buried by the algorithm under posts by more popular content creators. So, email marketing may be a better alternative. Not only are email campaigns more cost-effective, less time-consuming, but they offer businesses the opportunity to connect directly with their consumer (Montenegro 2021). An email provides the customer with an opportunity to ask a question in private, without being forced to comment in the public eye. Through building this intimate relationship, businesses can create customer loyalty. This is the name of the game for small businesses. Returning customers have been shown to spend 67% more than new customers, so retaining customers will boost profitability (Freedman 2024).
Government intervention has been posed as a controversial solution to aiding small businesses. While the US government currently provides small businesses with otherwise difficult-to-obtain information on market trends that will help them maximize their profits (ITA Blog 2023), another possible solution is a reduction in sales tax when shopping at small businesses. The government is in a position where it can choose to take any role that it chooses when it comes to helping small businesses, whether it be intervention on their behalf or sitting back and letting the market unfold on its own. The controversy arises because everyone has different viewpoints on government intervention. Some people may feel that markets should not be toyed with and goods will be sold at the price and quantity where supply equals demand, while others feel that small businesses are essential to the success of communities, and thus the government should intervene. With e-commerce on a meteoric rise, the government will have a decision to make in the near future.
References
“87% of Millennials Say Convenience Is Important When Shopping.” Supermarket News, April 6, 2023. https://www.supermarketnews.com/news/87-millennials-say-convenience-important-when-shopping.
“Impact of Covid Pandemic on eCommerce.” International Trade Administration | Trade.gov. Accessed May 7, 2024. https://www.trade.gov/impact-covid-pandemic-ecommerce.
Montenegro, Lisa. “Council Post: How Small Businesses Can Survive in an Online, E-Commerce World.” Forbes, January 27, 2021. https://www.forbes.com/sites/forbesagencycouncil/2021/01/29/how-small-businesses-can-survive-in-an-online-e-commerce-world/.
“Small, but Mighty: How the U.S. Government Helps Small Businesses Succeed Internationally.” Tradeology, the ITA Blog, August 22, 2023. https://blog.trade.gov/2023/08/22/small-but-mighty-how-the-u-s-government-helps-small-businesses-succeed-internationally/.
Team, Sell on Amazon. “9 Major Advantages of Ecommerce to Businesses in 2023: Seller Blog.” Accessed May 7, 2024. https://sell.amazon.in/seller-blog/advantages-of-ecommerce.
“Why Is Customer Loyalty Important?” business.com. Accessed May 7, 2024.https://www.business.com/articles/what-makes-customer-loyalty-so-important/.