There are few similarities between multi-billionaire Amazon owner and tech mogul, Jeff Bezos, and “lowly” Bronx Congresswoman Alexandria Ocasio-Cortez (AOC). One’s mind lives in running the world’s largest private emporium, while the other’s mind exists in a world where the government “redistributes” the wealth of those emporiums in a society that is supposed to be more just.
Bezos and AOC, however, do have a common cause that unites them, (one to further enrich himself, and the other out of naiveté) and that is the federal minimum wage of $15 an hour. Although the tech mogul just resigned as Amazon’s CEO , Bezos actively lobbied his retail rivals to establish a minimum wage like Amazon’s, and the next administration can be expected to continue that policy.
Amazon is betting that Congress will pass the $15 an hour minimum wage and a prediction of several economists will come true: that many small businesses will become unsustainable, including thousands of small retailers, accelerating a phenomenon that the U.S. economy has been experiencing since even before the pandemic, the retail apocalypse.
A wider problem
Since 2010 the number of retail stores has been decreasing in the United States due to the low flow of customers to the so-called “brick-and-mortar” stores, although part of the decline of physical retail has been due to online commerce, there are other factors specific to the business that produced its decline for years.
While it is true that digital commerce has been replacing in-person commerce, even by 2020 sales through ecommerce channels only accounted for 21% of total retail sales in the United States. Although e-commerce accounted for nearly all of the growth in retail sales during the pandemic, American consumers still prefer to go to the store.
Brick-and-mortar retail has become oversized
If the problem doesn’t come from the demand side, it must then come from the supply side, and that is that in the United States there is an oversupply of stores. Between 1970 to 2015 the number of malls in the United States grew at twice the rate of growth of the American population.
This oversupply of malls led to the beginning of closures after the 2009 crisis, which would increase over time. By 2017, when there were 1,200 malls in the United States, it was expected that in five years their supply would be reduced to 900. Since the pandemic unleashed in 2020, it is estimated that less than 750 malls will be left standing in the United States.
The closure of these malls will be accompanied by the closure of thousands of stores that were located in them. Many retail brands prior to the pandemic were saddled with mounting debt in order to sustain their operations, which did not translate into more customers coming through the store doors.
The cost of the pandemic
The pandemic was the lunge needed to kill thousands of stores and brands like J.C. Penney, Tuesday Morning, Stage Stores or J. Crew for good. Even the giant Macy’s had to announce that it will close more than 125 stores by 2023.
During 2020, 35 well-known retailers filed for bankruptcy and more than 12,200 stores had to close nationwide. According to the latest survey by the consulting firm BDO, nearly 66% of traditional retailers are struggling or surviving financially. Most retailers have serious cash constraints and half have less than 3 months cash on hand.
More than 83% of retailers have had to make use of government assistance and virtually all are implementing solutions to sell online, aware that physical stores will not return to their previous flow of customers any time soon.
What gives Amazon market power over other retailers is that Amazon accounts for more than a third of ecommerce sales in the entire United States, while the “brick and mortar” retail market, though larger, is spread across thousands of companies that do not have a fraction of Amazon’s resources.
Another blow to small retailers?
Amazon prides itself on paying its employees a minimum wage of $15 an hour and challenges its competitors to do the same, a challenge that does not affect its biggest competitors, as Walmart already pays a wage of $18 an hour, and Target established a minimum wage of $15 in 2020.
Those who have not been able to accept Amazon’s challenge have been smaller retailers who have instead cut shifts or laid off staff to stay afloat. An increase to $15 in the federal minimum wage would be the lunge retailers need to kill any hope of recovery for small and medium-sized retailers.
A $15 an hour minimum wage would hit local retailers located in low cost of living counties and consequently have a much lower revenue stream. That is, while a grocer in San Francisco may earn more than $15 an hour, one in Mississippi earns no more than $11 an hour, and despite earning $4 less, the cashier in Mississippi may have the same or even a higher quality of life than his or her California counterpart because living costs in Mississippi are much lower than those in California.
These lower costs of living also translate into lower consumer facing prices, so a retailer in Mississippi will effectively be much more expensive to pay its employees that $15 an hour than a retailer in California. While a federal minimum wage may not have an effect on wealthier states like New York or California, it is quite possible that the same increase will affect small businesses in poorer states like Mississippi and Louisiana.
Amazon seeking market dominance
Although the outlook for traditional retail is not encouraging for next year, it will not disappear and will continue to make up a fundamental part of the American economy. Amazon, aware of this, has ventured into “brick and mortar” businesses with brands such as “Amazon Pharmacy” and “Whole Foods”.
Amazon, being a corporation, can pay its employees wages of $15 an hour, as can Walmart and Target, as well as some retailers in states such as California and New York. But those who will not be able to will be those states with lower incomes that will have to choose to lay off payroll, affecting their operation, limit future hiring, or establish an online sales channel that, many times, ends up going through Amazon.
The fact is that the future of small retailers is not hopeful, a pandemic aggravated an existing disease and with a salary of $ 5 an hour, fewer small competitors can survive in a market that increasingly resembles an oligopoly.