The economics of buying online

We make more people employed if we shop on line. One to receive your order, one to process it, one to search for it, one to load the van & one to deliver it.

This comment was recently left on the website of a national newspaper.  It related to a news item about the impact of changes to business rates on some independent shops in the town of Hatfield in Hertfordshire.

A lot of the comments are along the lines that the government is not on the side of small independent shops, but rather on the side of big business.  The comment cited above suggests that buying online makes more sense, and appears to refer to buying online from a large retailer.

My first comment is that I read somewhere a few years back that a pound spent in an independent shop creates more jobs than a pound spent in a supermarket.  I have no idea what evidence if any supported this assertion, and I merely repeat it.

My second comment is that an online retailer is not necessarily a large company.  I often buy things on the internet, and so far as I can make out I am often buying from small traders.  In fact it appears that a lot of the things I buy are sold by people trading from their own homes.

As an aside, I can think of one large online retailer from which I have never bought anything, and never plan to buy anything.

If I buy something from a large company, whether or not that be an online purchase, then I may well be contributing to the salaries of a number of people.  I make the purchase, and an accounts clerk processes my payment.  My order is printed in a warehouse, and a picker collects the item I have bought.  This is then taken to a packer who begins the process of actually delivering the item to me.  The eventual delivery could be made via Royal Mail or a private courier firm.

By contrast, if I buy something from an independent trader, then I would be contributing to that trader’s revenues, but I might not be contributing to the salary of a single employee.  Quite simply the trader might not have any employees, although delivery would presumably still be via either Royal Mail or a private courier firm, and so I would in that sense be contributing to someone’s salary.

Nevertheless the salaries earned by the employees of the large companies would derive not merely from my purchase, but from the purchases of many customers.  Also, it is likely that the large company will employ many of its workers on a salary of the minimum wage or not much more.  It is also questionable to what extent the employees would benefit from the company having a higher turnover.  Higher turnover might well result in the company recruiting more staff, but that is not the same as improving the salaries.

By contrast, if I buy from an independent retailer, then I am tending to increase the income of that trader.  The trader might scrape by or might enjoy a substantial income.  If the trader employs any staff, then he or she has an obvious incentive to pay above the minimum wage.

A large company can more easily cope with a high staff turnover than a small business.  If you have a business and employ just one person, then you are likely to be seriously inconvenienced if that one employee leaves to get another job.  By contrast, a company with hundreds of employees will tend to find the loss of one employee to be less of an inconvenience.

This is of course a generalisation, and I accept that not all small businesses pay good wages – but that is in part because not all of them can afford to.