Why Obama Shouldn’t Be Giving His Speech at Amazon and Why the ABA and Bookstore Owners Are Wrong, Too

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

The American Booksellers Association and indie bookstore owners across the U.S. are up in arms because President Barack Obama is delivering a speech today from an Amazon fulfillment warehouse in Chattanooga, Tenn.

The administration is too “cozy” with an “American monopoly,” they say (via). Publishers Weekly asks if the Obama administration “hates indie bookstores,” citing several angry bookstore owners. Taking a more sober tone, Publishers Lunch points out that Obama has made a point to visit indie bookstores, even to take his daughters shopping there. Regardless, the ABA is incensed and called Amazon’s reputation as a job creator “woefully misguided.”

(Before I go on, I should say that I have no skin in this game. I don’t have love or hate for any firms in this wonderful business in which we are lucky enough to work. I love patronizing indie bookstores and love reading on my Kindle Paperwhite. I have great respect for the ABA and bookstore owners [many of whom I’ve come to know through my reporting here and on other stories]. Bookstore owners, especially, are smart, savvy and incredibly passionate about their businesses. I also have great respect for those who have built Amazon and other big firms in the book trade — both the leadership and employees.)

Obama’s speech is about job creation and, reportedly, will offer his Republican rivals a compromise on passing a job creation bill that will be a mix of corporate tax cuts and investments. And likely the reason that Obama will be giving the speech at an Amazon facility is for the company’s record hiring in the U.S. and because of the company’s timed announcement that it is creating 5,000 new permanent jobs here in the near term.

While it could be argued that Amazon has put a lot of other firms out of business by taking their customers, it sounds like sour grapes to me coming from indie booksellers today. Business rise and fall all the time for a huge variety of reasons. And, in my opinion, if Amazon weren’t pushing the U.S. toward online retail and ebooks, another company would be.

That said, what the ABA is claiming about Amazon and job creation is a bit dubious but there’s a kernel of truth buried within it. At the end of 2010, Amazon had 33,700 full-time and part-time employees. At the end of 2012, the company had 88,400. That’s a huge amount of job creation. Now, one might say that many similar jobs at small businesses have been destroyed; I’m not going to debate that. I simply don’t know.

Still, what Amazon has done is kind of an amazing feat, because large businesses are not the engine of jobs growth for the economy. In 2012, according to relatively new experimental data from the Bureau of Labor Statistics, businesses with 5,000 or more employees made 365,000 hires (this is gross new jobs, not net). Sounds like a lot, right? Well, it’s only 0.75% of all the new hires in the U.S. last year.

By comparison, businesses with between one and nine employees made about 16% of all new hires. I would guess that most indie bookstores fall into this category. For the larger ones or chains, it should be noted that businesses with between ten and 49 employees made about 31% of all new hires and those with 50 to 249 employees made 33%.

So, in a way, the ABA is right: Companies like Amazon are not the engine of job growth for the U.S. economy. In fact, it may be misleading to give a speech at an Amazon warehouse saying that what we need more of is this because it’s not likely that many more companies like Amazon will do what Amazon is doing.

But Obama shouldn’t be going to an indie bookshop or some other small business either to make the same speech; he’d be better off going to a bank or the offices of a venture capital firm, which fund the creation of new businesses. Why?

Because small and medium-sized businesses aren’t the engine of job growth in the economy either.

It’s new businesses, those just starting, those that go from one to five employees or 40 to 200 in a year that drive job growth across the U.S. I reported on this back when I was at Dow Jones. It was the depths of what we were calling a “jobless recovery” and we were trying to figure out why new hiring wasn’t picking up. Corporate earnings were up, the stock market was looking good, but unemployment wasn’t ebbing like we all thought it would — like many of us hoped it would.

But why? It was because demand for goods and services wasn’t picking up, stifling the growth of new businesses that had planned on expanding and making many more new hires but couldn’t or didn’t because of lack of demand.

Our reporting was bolstered by a recent study by the U.S. Census Bureau which attempted to get at the question of who really creates jobs. The study found that it’s new businesses — especially ones that survive the first year or two — that really juice hiring. (You can read the story we put together here.)

A really good example is Groupon, the daily deal company. In 2009, it had 37 employees. When we published the article in 2011, it had over 9,000. We cited several more and also spoke with new business owners who spoke about scaling back their hiring plans due to lack of demand.

So, what should indie bookstores do in light of all this?

Many of the indie bookstore owners I’ve spoken with are ruthlessly innovating to keep their businesses thriving. Innovation leads to growth — it certainly has in Amazon’s case.

As for the ABA, if it really wants to own the “we are job creators” message, it should encourage the opening of new bookstores and expansion of established ones. There may be opportunity for this in the coming years as more Barnes & Noble locations close, per the company’s stated strategy.

When a city or town loses a big bookstore, it needs to replace that with something. After all, only 6% of all retail sales in the U.S. last year were through e-commerce and that number is expected to grow significantly, but not to more than 20%. That’s a lot of room to run for savvy, aggressive and innovative new business — er, I mean, bookstore — owners.

 

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