Salon, July 12, 2014
A motley group of boomers and millennials recently filed into Scottish Rite Center on the shores of Lake Merritt in Oakland, California, to talk about economics. Dressed casually in denim, lace and cotton and sporting dreadlocks, bobs and buzz cuts, these small-business owners hailed from rural bergs, little towns and long-neglected urban cores from around the country. It’s safe to say that most of them were not members of Amazon Prime. Rather, they were true believers in the saving grace of local living economies. Assembled in this temple-like structure built by the Freemasons, they are convinced that the only way out of this Unending Recession is to adopt a model in which local business owners make up most of the local economy and drive that region’s wealth.
“We’re trying to nudge Wal-Mart and Amazon out of the picture so everyone else can make a little bit more money,” said a wag from Missoula, Montana.
As it is, Amazon is getting slapped by a great equalizing force — taxes — specifically retail sales taxes. For the past two decades, shoppers at Amazon and other online retailers haven’t had to pay retail sales taxes (also called consumption taxes), unlike the patrons of brick-and-mortar stores. This has been a huge advantage for Amazon and is why so many of your favorite bookstores went out of business, along with local toy stores, baby shops, beauty suppliers and other mom and pop operations.
But thanks largely to local economy advocates, some 22 states now require Amazon to collect sales taxes from shoppers. According to two recent studies, that change is hurting Amazon by squeezing its already thin profit margin of 1 percent and threatening to depress its stock price. The behemoth won’t report second quarter earnings until July 24. But we already know that it expects to report flat sales of $20 billion or so and another quarterly loss. Fund managers and investors would punish a brick-and-mortar retailer like J.C. Penney’s for not delivering solid profits. But Wall Street doesn’t mind a continuous run of annual losses from Amazon, headed by a former executive at an investment banking firm. In the parallel universe of dot.coms and apps, barn-burning growth is what counts, especially growth that burns your rival’s barn.
And that’s precisely what’s wrong with Amazon’s business model, according to the congregation in Oakland.
A few economists and researchers began to study the issue. “The more information consumers have, the more they buy local,” said Michael Shulman, a fellow of Post Carbon Institute. If local businesses provide good products and services and if chains continue to sell cheaper, shoddy products, consumers will shop at local stores. Other researchers went deeper and looked at Amazon’s effect on jobs. Brick-and-mortar retailers employ 47 people for every $10 million in sales, according to an analysis by ILSR of U.S. Census data. Independent retailers employ even more people and create 52 jobs for every $10 million.
However, Amazon employs only 14 people per $10 million in revenue. That means that as Amazon grew and took market share from other retailers, the number of U.S. jobs declined. In 2012, Amazon expanded its share of retail spending in North America by $8 billion, producing a net loss of about 27,000 jobs, according to the Institute of Local Self-Reliance.
“Local businesses keep more money in the local economy, employ more locals and pay their taxes,” Lanning explained. Her friends at BALLE, Local First West Michigan, Slow Money Northwest and dozens of others got a chance to trumpet this message in their own communities. In 2011, Arizona’s independent stores partnered with the Arizona Retailers Association to talk to their “wacky” legislators about changing the state’s no-tax policy toward Amazon. “It was funny that these big chains like Walgreens and Home Depot took our side in the discussion, but the law was hurting them, too,” said Lanning.
Faced with the retailers’ united front, Arizona’s Republican lawmakers listened to the localists explain the economics of independent businesses. “We talked about mounting a taxpayer lawsuit against Amazon,” said Pennypacker. “We talked about me getting a refund from the state for all the years my online operation paid taxes.” They talked about a lot of things.
But it all became moot after Arizona officials finally sent Amazon a $53 million tax bill. Amazon paid a nominal part of that bill and, on Feb. 1, 2013, agreed to begin collecting and remitting sales taxes on all goods sold to Arizonans. On July 1, 2013, it began paying taxes on digital goods like e-books, too. It was quite the victory for Local First.