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Amazon dominates almost 50% of the U.S. ecommerce market. Its recent Prime Day shopping holiday generated over $4.2 billion in sales during the 36-hour sales event.

How can independent businesses compete against such a giant?

“Independent, locally-owned businesses in all sectors provide sizeable and measurable benefits to their local economies in comparison with national chains,” the Home Sweet Home: Locals vs. Amazon study said in its recently released report.

This report provided a comprehensive look at the ecommerce market in the U.S., particularly in the home improvement sector. We will outline this study’s key findings in three areas: a general picture of online sales; sales trends in the home improvement ecommerce sector; and what advantage local/independent retailers have over Amazon and national box chains.

The Ecommerce Landscape

“While the home improvement industry is widely believed to be less vulnerable to online competition than other retail sectors, it nonetheless presents a challenge that independents must address,” the Home Sweet home: Locals vs. Amazon wrote in its report.

In 2016, Amazon and its third-party marketplace vendors sold $133 billion of retail goods in the U.S. This resulted in:

• 44,000 displaced shops
• 637,000 displaced retail jobs
• at least $3.9 billion in uncollected state and local taxes

Online sales for independent retailers are historically low for two major reasons. First, customers like to inspect hardware items like paint before committing to a purchase. Secondly, big box chains have implemented a hybrid online ecommerce model that accommodates a buy online, pick up in-store model (click and collect).

While customers regard independents as a trusted retailer with expertise, they like the high-tech options that the larger chains offer that shows them if the store has the item in stock before they get to the store. Not every independent retailer can offer such high-tech options to shoppers.

Home Improvement E-commerce Trends

Total ecommerce sales reached $453.5 billion in 2017, which is a 16% increase from 2016. Total ecommerce sales accounted for 8.9% of all retail sales in 2017, up from 8.0% in 2016

Home improvement occupies a small slice of the ecommerce pie.

Online home improvement retailers accounted for 2.3% of all online sales in 2015, which is the most recent available data. Home improvements sales from independent retailers accounted for less half of that total in 2015.

The buy online, pickup in-store hybrid ecommerce option accounted for a major chunk of two national retailers’ online sales. Home Depot’s online sales made up 5.9% of all of its sales in 2016 and 3.5% of all of Lowe’s sales were online. Click and collect accounted for 45% of Home Depot’s online sales and for 60% of Lowe’s online sales.

The Local Advantage

Buying tangible goods from an independent business produces about double the local economic impact compared to national chains, the first edition of the Home Sweet Home study found in 2015. Its findings from its 2017 and 2018 studies continue to show that locally-owned businesses have a greater impact on local economies.

Sales through local hardware and paint dealers have a local impact nearly 7 times greater than sales through Amazon. There are three main areas that independent businesses contribute to the local economy: labor, revenue reinvestment and charity.

Local businesses support a local labor force.

Profits earned by independents stays in the local economy and is often reinvested locally, unlike chain and online stores. Chain store profits returned to the local economy are “nominal at best,” the Home Sweet Home: Locals vs. Amazon study says.

The proportion of revenue recirculating locally by business type is:

• 30.4% local business
• 12.2% chain store
• 3.9% online

A “smaller yet significant share of the local advantage is charitable giving,” the study goes on to say. Locally owned stores contribute to local charities that matter to people in the area. Even when national chains and/or online chains support local organizations, the cost of the marketing campaign alerting locals to the local charitable enterprises may exceed the value of any charitable gift given to said local charity recipient.

Parting Thoughts

The study found that if Amazon were to capture 10% more of the home improvement market from independents, Americans would see a loss of $9.3 billion in local economic activity.

Amazon can’t compete with the local impact that independent businesses have on their local economies.