In shopping centers, strip malls and converted garages all across America, a real-life David vs. Goliath battle is being waged. Small businesses -– the employers of half of the U.S. workforce and responsible for two-thirds of all new jobs created since the mid-1990s -– are being put out of business by multibillion dollar companies like Walmart (WMT) and Amazon (AMZN).
"Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America," famed New York Times economist Paul Krugman began a recent column. Arguing that Amazon is a "monopsonist" -– a business entity so large and powerful that its purchasing power allows it to dictate terms to suppliers -– he compares its tactics to that of Standard Oil before it was broken up by Teddy Roosevelt.
"Don't tell me that Amazon is giving consumers what they want, or that it has earned its position," he continued. "What matters is whether it has too much power, and is abusing that power. Well, it does, and it is."
Most mom and pop businesses would tell you that Krugman is right, that companies like Amazon are making it harder and harder for them to survive. But some are fighting back -- and winning.
The Story of One Bookstore
Steve Peters runs Catholic Books & Gifts, a small, family-owned business that has been in Southern California for 20 years, and he knows what it is like to go head-to-head with Amazon and other online retailers.
He can't compete on brand awareness. "The toughest challenge for us with an Amazon or even a Barnes & Noble (BKS) is that they are well known across the country." Nor price. "Many times they beat us on price," he continued, bolstering Krugman's assertion that purchasing power enables major retailers to artificially drive prices down. But he can win on service.
Being smaller enables him to have a more intimate relationship with his clientele. "We have a big advantage in a couple key areas. Knowledge and selection," Peters said. "Even though Amazon is a million times larger than us, they can't go in and familiarize themselves with each item they carry. That's our No. 1 advantage. Almost daily, people come in and ask for a gift, describing in detail the person the gift is for. Being able to point customers in the right direction in these situations is a major advantage."
Peters has also taken the same tack that many small-business owners battling Amazon have by picking a niche market and becoming a specialist. This enables him to stock a deeper selection than the online giant can. "Barnes & Nobles doesn't carry 10 percent of what we have in stock, and Amazon doesn't even carry half of the books we have," Peters said. "So we have customers who come in and find books here that they can't get anywhere else."
Taking good care of customers and providing them a wide selection of products has earned the store a loyal following, and smart merchandising choices that reflect its customers' purchasing habits helps to distance it even further from Amazon.
Peters' store carries many items that are outside his core books but relate to customer needs. "When it comes to gifts, most people want to see them it in person, and we have a wide selection," he said. "Also, most people wait till the day before to buy gifts for baptisms, confirmations, first communions, etc, and so it's really a timing thing for them. They can run in and get something nice in five, 10 minutes."
But just because he runs a brick and mortar business, that doesn't keep Peters from mixing it up with Amazon on its own turf. "You can create an account on our website and shop online with us as well," he said. "We deal direct with many small publishers who don't want to sell to Amazon because they know they will squeeze all the mom and pop shops.
Peters' business model echoes the famous words of Hall of Fame slugger Willie Keeler, whose advice to rookies was, "Hit 'em where they ain't."
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15 Important Expenses That You Forgot to Plan For
How One Mom and Pop Business Is Beating Amazon
Is your water bill due quarterly? Figure out how much you need to save each month to have enough to pay for the bill when it comes, and put that amount aside each month so you'll be prepared. Do the same for any bills due regularly but not monthly.
Bills you only have to pay once a year can be even harder to remember, so be sure to note things like property taxes, auto registration fees and insurance premiums and budget for them as well.
Annual subscriptions and memberships regularly trip up people's budgets. Be sure to set aside money each month for things like:
Newspaper and magazine subscriptions.
Warehouse club memberships.
Road service membership fees.
Other expenses don't happen on a regular basis, but you can still predict the need to pay for them over the course of the year. Chief among these are repair and maintenance expenses, with the biggest ones being car-related costs (oil changes, inspections, new brakes or tires, etc.) and home costs (leaky faucets, spring-time yard work, etc.).
Some home repairs go beyond the scope of "routine" and require a significant amount of money in reserve. These can include replacing your roof, installing new windows or doing a major home renovation. You can anticipate the need for most of these repairs before you have to make them, so be sure to start budgeting for them in advance.
You also need to repair and maintain your body, so factor in medical costs like annual physicals, eye exams and dental checkups, as well as co-pays and prescriptions costs if you have any ongoing conditions.
If you plan to purchase any large items in the foreseeable future, from appliances to a new car, make sure you're putting aside enough each month to pay for them in cash. It's always best to pay for big-ticket items upfront rather than finance them (unless you can get a fantastic discount by financing and can pay the balance in full before any interest kicks in).
From birthdays to holidays, there are plenty of special occasions each year to budget for. Make sure to include:
Party hosting costs.
Dinner costs if you take someone out to celebrate.
Wedding expenses (gifts, travel, hotel stays, etc.).
Your four-legged family members also need to be part of your budget. Pet care costs to consider include:
Food and treats.
Vet bills and medications.
Boarding or pet sitting.
Do you take an annual vacation? Travel twice a year to visit family for the holidays? Set aside money each month for any travel-related costs such as airfare, hotels, meals, rental cars and souvenirs.
Whether you run a business or simply a household, there are certain expenses you may need to plan for in the business category. These can include:
Tax preparation fees and tax payments.
Dues for professional organizations.
Whether you give annually to a charity of your choice or like to have some money set aside for your friends' and family's fundraisers, make sure to allocate enough each month to cover these donations
A good budget allows for a little "free" spending money you can do with as you please. It can be $20 a month for fancy coffee at your favorite coffee shop or $100 a month to feed your favorite hobby. The amount doesn't matter so much as the fact that you're allowing yourself a little guilt-free fun to keep your budget from feeling too restrictive.
Depending on your lifestyle, your eating out and entertainment budget could be a little or a lot. Whether you prefer to have dinner out once a weekend or see a movie every few weeks, figure out how much you'd ideally like to have and then examine any budget categories you can tweak to make room for it. If you realize you need to cut back on your habits a little to save money, that's fine too-at least you're aware of it now so you can act accordingly.
Even if you're not a clothes horse, chances are there are certain items you'll need to purchase throughout the year. These can include:
Updated work clothes.
A new coat, hat and other accessories come winter.
A new bathing suit for the summer.
New shoes as yours wear out.
Back-to-school clothes for your kids.
Calculate your annual spending on all clothing and accessories and divide that amount by 12 to determine how much you should be putting aside each month.