Your more expressive e-commerce advocates are eating your lunch and you're not even putting up a fight. Society will benefit when you proudly defend your profession.
There aren’t many trends in the last fifty years which have had such a negative effect on the environment, economy and societies in general than has the proliferation of e-commerce as it’s practiced in America.
❓ Have you ever heard e-commerce portrayed in such a manner?
❓ Have you ever heard a retail developer defend his profession against e-commerce evangelists? Or, do they rather roll over like dogs waiting to be petted by their e-commerce masters?
In this edition of the Emerging Real Estate Digest we’ll unpack four reasons why America’s method of e-commerce is one not to be emulated. Latin America’s model is healthier, more sustainable and one where all stakeholders benefit.
America’s Unhealthy E-Commerce Ecosystem
America’s version of e-commerce degrades the environment, guts local tax bases, reduces gender employment equity, and unfairly squeezes out small retailers.
(1) Degrades the Environment. Studies out of the WEF indicate traffic will spike 30% in the world’s top cities because of e-commerce fulfillments, increasing commute times by 21% by 2030. Excess packaging associated with e-commerce adds enormous stress on landfills. 3 billion trees are pulped annually to produce 241 million shipping cartons. Amazon alone produced 465 million pounds of waste from excess packaging in 2019.
Amazon’s overall emissions spiked between 2019 and 2020 in an amount equivalent to running fifteen coal plants for an entire year.
The return rate of items purchased online is over 30%, compared to a rate of just under 9% for items purchased at a brick-and-mortar store. The disparity is due to the increased likelihood of delivered items arriving damaged, and that the online purchased product may not meet the consumer’s expectations which were based on images and third-party consumer reviews. Traditional retail permits the customer to conduct an initial inspection prior to purchasing the item, leading to a lower return rate. Many e-commerce returns are thrown into landfills, instead of being resold, adding to the inefficiency and harm to the environment.
(2) Shrinks Local Tax Bases. Most local governments generate less than 11% of their budgets from sales tax collections. Their bread is buttered from property taxes, and income taxes (i.e., payroll and local taxes). For years, Amazon paid zero sales tax on products it sold online creating the double whammy for local governments of collecting fewer taxes, while the community was being demanufactured (i.e., capacity shifted primarily to Asia) by the same or similar forces.
In the simplest terms, e-commerce as we’ve experienced it in America, sucks dollars and jobs out of communities leaving a mostly unfillable void in the wake. Property values, incomes, and jobs are reduced. These devastating outcomes began with Wal-Mart replacing local retailers, and now Amazon is taking it to a higher level as a sort of Wal-Mart on steroids.
Estimates are that USPS has over the years undercharged Amazon by as much as $1.50 per package. These incredibly poor deals for the taxpayer allowed Amazon to invest in its own last-mile capacity, and offer low to no delivery fees to customers which no other retailer could realistically match. Today, Amazon has built its internal delivery infrastructure to a point where it performs most of its deliveries internally in urban and suburban areas. However, it still uses the subsidized arrangements with the USPS for the more expensive rural and smaller markets deliveries, which costs 1.4 to 4 times more to deliver.
(3) Reduces Gender Employment Equity. Modern America’s bigoted obsession with hiring based on racial and gender considerations is historically outrageous. The practice is unacceptably discriminatory because it’s based on irrelevant factors such as what’s between one’s legs, and skin pigment type. With that caveat in place, e-commerce has disproportionately impacted women in a negative manner.
Most e-commerce logistics jobs are filled by men. These jobs include delivery drivers, and packaging, sorting, distribution and warehouse jobs. Women aren’t excluded from such jobs, in fact it’s quite the opposite, they are strongly encouraged and given preferential access to the available jobs. E-commerce logistics jobs are generally considered undesirable and low-status by most female job seekers.
Women prefer the retail jobs which e-commerce took from them.
(4) Squeezes Out Small Businesses. Small and locally owned and managed retailers are now less likely to be able to rely on their local consumers, and are forced to digitize to survive. Google and other digital intermediaries make it very difficult for the small retailers to compete against the Amazons of the world. This results in most small retailers feeling forced to conduct their business through existing marketplace platforms such as Amazon, Facebook Marketplace and eBay.
Last-mile logistics is by far the most complicated and expensive part of the product delivery journey. Small retailers don’t receive the subsidized USPS shipping Amazon receives, and they don’t have the capital and consumer base to justify owning distribution centers and vehicle fleets. Free shipping isn’t actually free, it is a cost absorbed by the large e-commerce companies to gain market share and squeeze small businesses out of the market. Amazon invests heavily in its last-mile capacity because it knows how important it is as a strategic competitive advantage.
Latin America’s Version of E-Commerce
The markets in Latin America have much healthier relationships with e-commerce than is the case in America and some other advanced economies. The saving grace for these markets has been lack of suitable logistics infrastructure, governments unwilling to subsidize private e-commerce shipments, and distrust by the populations of making online orders.
In Latin America, you still see vibrant malls serving as safe and clean gathering places to interact with other humans and make purchases. Most Americans are shocked to hear that Sears and Radio Shack are still trading in Mexico and doing quite well. On the weekend a Sears in Mexico is packed to the gills just like they all were in America before it was captured by Amazon and friends.
A typical Latin America e-commerce transaction is fulfilled through apps such Colombia’s Rappi. Rappi permits customers to purchase a wide range of meals and consumer goods, make payments, and track the delivery process. Most items are delivered within 45 minutes from the time of ordering, and some within 10 minutes.
In the case of Rappi, the last-mile logistics are fulfilled by an individual who lives in the community and usually on the back of his own motorcycle. The fees he generates are greater than most other available options, and some of his salary will inevitably be used to purchase goods in the same stores for which he makes deliveries. The goods are generally purchased directly from the retailer with the product, which is closest to the customer. In this way, e-commerce order fulfillment supports local businesses and permits family-owned retailers to compete on a level playing field.
In America, e-commerce competes with traditional retail and causes incalculable damage to society, environment and local economies. In Latin America, e-commerce complements traditional retail and improves the society for all stakeholders.
Next week: an optimistic message for why there is cause for hope that the e-commerce pendulum is swinging in America. Even the e-commerce lap dogs and laggards will find comfort with next week’s message.
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