There Are Ways to Compete with Amazon
An online bookstore managed to increase sales during Prime Days by appealing to customers who would rather support local businesses.
Good Morning!
Here are today’s highlights:
The federal government just set a record for spending with small businesses—but there’s a catch.
The IRA’s green-energy subsidies are proving more popular with businesses than expected. Is that a good thing?
Home builders are booming because homeowners don’t want to sell.
It’s not too early to think about what AI could mean for your business.
MARKETING
Here’s how Bookshop.org used Prime Day to boost sales: “While millions of shoppers flocked to Amazon’s Prime Day deals, Bookshop.org saw six times its usual sales. During one of the biggest sales periods of the year, Bookshop.org ran its own promotion, offering free shipping and a tote bag with purchases over $100. Another selling point? The knowledge that profits weren’t padding the margins of the world’s largest e-commerce business. ‘Independent bookstores need your money more than Amazon does,’ one promotional Instagram post said. ‘Keep your money in your community so these stores can be here for years to come.’”
“Founder Andy Hunter launched Bookshop.org in 2020 as an alternative place for people to buy books online, that would share profits with independent bookstores. Hunter told Modern Retail this year’s anti-Prime Day promotion (which is an annual affair) generated 600 percent more sales than a typical Tuesday and Wednesday. In total, nearly $160,000 was generated for local bookstores in those two days alone.”
“Shoppers can designate a specific store to receive proceeds from their purchase, or they can allocate it to a pool that’s divided up among roughly 1,700 U.S. bookstores. To date, Bookshop.org has sent nearly $27 million back to local bookstores, or about 80 percent of its gross margin.”
“Hunter also credits the growth of the site to more shoppers seeing how small businesses can struggle in the competition against Amazon. Those shoppers are willing to wait an extra day or pay for shipping to ‘support a more ethical company,’ he said. Bookshop.org’s A/B testing shows that ‘anti-Amazon’ performs well.” READ MORE
GOVERNMENT CONTRACTING
In the most recent fiscal year, the federal government set a record for spending with small businesses: “The federal government said in a new report that it awarded $8.7 billion more to small business contractors compared to fiscal 2021 and exceeded the Biden administration’s goal of 23 percent of federal contract awards going to small businesses, with 26.5 percent. But there is a big catch. The overall number of prime small business contractors continues to shrink, with just 62,670 in fiscal 2022, down more than 4 percent from the 65,428 reported in fiscal 2021. Overall federal contracting spending has been trending upward for years, but the number of small businesses receiving prime contract awards has been declining — meaning a larger share of dollars was going to a smaller pool of businesses. Between fiscal 2010 and fiscal 2021, the number of small businesses receiving government contracts fell from 121,270 to 65,428.”
“There were also notable declines in prime small business contracts to women-owned small businesses and service-disabled, veteran-owned small businesses, both of which saw drops of more than 2 percent. Small disadvantaged businesses saw a slight increase.”
“Many small businesses across the country also may be newly eligible for billions of dollars in federal contracting spending. The SBA launched a new map of its Historically Underutilized Business Zone (HUBZone) program, which shows small-business owners if they are located in underserved areas that will allow them to apply for special federal contract set-asides and other special programs.”
“There are thousands of new HUBZone areas that have been designated as part of a periodic assessment of the program. The new zones went into effect on July 1. Last year, a record $14 billion in federal purchases went to HUBZone-certified businesses.” READ MORE
TAXES
The Inflation Reduction Act’s green energy subsidies are proving more popular with businesses than expected: “That likely would further increase the federal deficit but also reduce carbon emissions more than first forecast. Which raises the question: On net, is that a good thing or a bad thing? In large part, it depends on your perspective. If you believe that climate change is a left-wing fantasy, you probably think all subsidies aimed at mitigating it are a waste of taxpayer money and a windfall to business. On the other hand, what if you believe global warming is an existential threat to the planet? Then, the subsidy story is much more ambiguous.”
“Supporters of government climate initiatives would say that if the goal of the credits was to accelerate the production and consumption of alternative energy, more take-up means producers are responding more enthusiastically to the incentives. Sure, it will add to the budget deficit in the short run. But compared to the potential costs of climate change, more government debt may be a small thing.”
“Even if you believe all that, however, ask yourself: Are there better, more cost-effective tools to slow climate change? To start, much of the IRA money inevitably will be wasted, largely because companies and consumers will get tax benefits for doing what they would have done anyway. By one estimate, three-quarters of electric vehicles expected to be sold in 2030 would be purchased without the new tax credits.” READ MORE
LITIGATION
The battle over Taco Tuesday has ended: “Restaurant chain Taco John’s said Tuesday it is giving up its fight defending its trademark of the phrase ‘Taco Tuesday.’ Fast-food giant Taco Bell filed a petition in May with the U.S. Patent and Trademark Office seeking to cancel the trademark. Taco Tuesday is generic and any restaurant that makes tacos should be able to use it, said Taco Bell, which is owned by Yum Brands. Jim Creel, chief executive of Taco John’s, which operates nearly 400 restaurants in more than 20 states, said the company estimated it could cost as much as $1 million to defend the trademark.”
“‘It’s just not worth the amount of money it would take to defend it,’ Creel said. ‘We’d rather take that money and put it toward a good cause.’ Creel said Taco John’s will donate $40,000 to Children of Restaurant Employees, a nonprofit group that provides financial support to people who work in the restaurant industry and have children.”
“Creel said he hopes Taco Bell will consider giving a donation to the group as well. Taco Bell didn’t respond to requests for comment.” READ MORE
HOUSING
Home builders are booming because home buyers don’t want to sell: “After mortgage rates shot up last year, Ivory Homes, one of Utah’s largest builders, suddenly had few buyers for the hundreds of homes it had under construction. So Clark Ivory, the chief executive, laid off 9 percent of his staff, and by January he had slashed construction by nearly 80 percent from its 2022 peak. Then, much to his surprise, sales of new homes started picking up. By May, even though mortgage rates weren’t really budging, sales for all home builders were at their highest level since early 2022. Millions of American homeowners have been reluctant to sell because they can’t afford to give up the low mortgage rates they have now. Only 1.08 million existing homes were for sale or under contract at the end of May, the lowest level for that month in National Association of Realtors data going back to 1999.”
“Newly built homes accounted for nearly one-third of single-family homes for sale nationwide in May, compared with a historical norm of 10 percent to 20 percent. Existing-home sales in May fell 20 percent year-over-year, while new single-family home sales that month rose 20 percent on an annual basis.”
“So far, the home-building revival, coupled with financial incentives offered by builders, is providing only minor relief to prospective buyers. Builders aren’t erecting enough homes to offset the shortage of existing ones on the market, meaning buyers in many places still face bidding wars.”
“Builders nationwide are focusing on cutting costs and building smaller homes with lower price tags. Nationally, the proportion of new homes sold in May for under $300,000 rose to 17 percent, the highest level since December 2021.” READ MORE
RETAIL
We’re becoming a nation of early birds: “Trendy new restaurants are closing their kitchens at 8 p.m. And movie theaters are swapping late-night screenings for matinees. Hybrid and remote workers itching to leave the house as soon as they close their laptops are fueling the shift. Restaurants are now seating 10 percent of diners between 2 p.m. and 5 p.m., up from 5 percent in 2019, according to Yelp. Dinner parties are starting as early as 5 p.m.”
“In New Orleans, notorious for late nights, concert promoter River Beats used to schedule main acts to start as late as 1 a.m. Now, a typical event starts at 6 p.m. and ends at 11 p.m. at the latest. ‘We noticed a decline in attendance at late-night events and a demand for earlier events,’ co-founder Sean Schmidt says. ‘We didn’t totally know why it was happening, but it was, and realized soon the promoters not meeting this demand would likely fall behind.’”
“Kristina Dinino-Jeffords, who owns the dine-in ROC Cinema in Rochester, N.Y., recently ended late-night screenings. She estimates her theater does 75 percent of its business before the 8 p.m. show, now the latest offered, up from 45 percent in 2019. ‘Before, we would definitely have a sold out 8 or 9 o’clock show. Now we’re lucky to fill 20 seats out of 100,’ Dinino-Jeffords says.”
“She added a 3 p.m. weekday show, and has been surprised by its popularity. Many customers at early shows are young professionals, some of whom she suspects of playing hooky. ‘They have to order food and drinks on their phones anyway, so it wouldn’t be hard to shoot off a quick work email during a lull in the drama,’ she jokes.” READ MORE
TECHNOLOGY
The Harvard Business Review says AI will be the defining technology of our time and that every business should be thinking about it: “Consider an example from health care. Paige is a software company using AI to change the way doctors identify, diagnose, and treat cancers. With properly trained and tuned models, AI can look at thousands of digital pathology images, pixel by pixel, and detect abnormalities faster and with more accuracy. Imagine what these tools can unlock not only for pathologists and doctors, but for patients, too. It means earlier disease detection, healthier lives, and more time with loved ones. Right now every company, no matter the size or industry, should be thinking about AI.”
“AI is moving from its auto-pilot phase, which was all about narrow, purpose-built tools that use machine learning models to make predictions, recommendations, and automate, to its copilot phase, where there’s tremendous opportunity to revolutionize how just about everything gets done.”
“The best way to learn about AI is to use it. It’s rare for new and disruptive technology to be immediately accessible. This is. Most of the leaders I talk with have tried popular AI applications like ChatGPT or the new Bing. There are many other options out there, but the point is to get curious.”
“I used Bing and ChatGPT to help me get ideas for a speech. I’ve used Microsoft 365 Copilot, the AI integration across Microsoft apps to generate slides, to find and summarize documents that share a topic, and to recap email exchanges with colleagues. [Ed. note: The author works for Microsoft.]”
“By using and experimenting with AI, you’ll be in a better position to imagine how it could be used in your organization — and you likely know better than anyone where opportunities and potential exist.” READ MORE
STARTUPS
Cashi Cake makes candies and drinks from seaweed: “Alissa Miky cares about the environment and about people’s health. She combined these two interests when she founded Cashi Cake in 2019. It’s a sustainable marine plant-based food-tech company that found an innovative way to create high-quality foods, beverages, alternative packaging and medical capsules from seaweed. It has created two products, Misaky Toyko and OoMee, using the technology. Misaky Tokyo is a luxury candy delicacy. OoMee is a fruit drink. Both contain red algae extract, a form of seaweed.”
“Cashi Cake’s product Misaky Tokyo is a crystal jelly candy that’s gluten-free, vegan, and additive-free. Prominent customers that carry this delicacy include luxury hotels, restaurants, and retailers, including Nobu and Cartier.”
“OoMee is a fruit-infused water which can be consumed daily to support good gut health, Miky said. This product is currently in a soft launch. Early next year, Cashi Cake is planning to do a hard launch of OoMee.” READ MORE
THE 21 HATS PODCAST
Is Anybody Listening to Me? This week, Shawn Busse, Paul Downs, and Jennifer Kerhin talk about the challenges of communicating with employees, especially in the post-pandemic world. It’s hard enough to get aligned on mission and vision, but how do you connect with an employee you’ve never actually met in person? Is that even possible? We also discuss Jennifer’s realization that she has over-performed on sales but under-performed on marketing, which is part of the reason she’s re-doing her website. “I need a higher level of prestige,” she tells us, “so, better copy, better photographs, an all-around more sophisticated look. What we had was mom and pop. You know, Wix.”
Plus: the panel tackles a question posted on the small business subreddit: “How large can my margins become before I'm ripping off my clients?”
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren