Retailers vs. the Internet: How Can Locally Owned Businesses Possibly Compete Against Online Megastores?

In Cover Stories by S. Heather Duncanleave a COMMENT

A woman asks a local store clerk with more than 20 years of expertise for a recommendation: What would you buy for a 2-year-old?

Eager to help, the clerk points out some age-appropriate, mind-stimulating toys—and then watches in disbelief as the “customer” proceeds to immediately buy one of them online with her smart phone. In the store, right in front of the employee.

Shopkeepers have all seen it: A customer tries on a backpack or gets measured for a kayak in a local store, then orders it from Amazon for as little as a dollar less. Sound familiar? Of course it does. Who hasn’t ogled something they want in a store and then later (or immediately) checked online for a cheaper price?

The online shopping industry that creates this mindset presents a mounting threat to local retail economies. This year, for the first time, shoppers in an annual United Parcel Service survey reported that they made more than half their purchases online. And Amazon is capturing half the total money Americans spend online, putting the company in a position to control the infrastructure its competitors depend on to reach the market, according to a report by the Institute for Local Self-Reliance.

Amid these pressures, ’tis the season for many local retailers to find out whether they will make it another year, since Christmas sales often float stores through those months when the bell over the door rarely jingles.

Luckily, there’s still a niche for browsing in a store full of products you can touch and feel, with a friendly expert to guide you and introduce you to other people with similar interests—possibly with a pint in your hand. Successful Knoxville retailers are fighting the online onslaught with a business model of building community and providing an unique experience to keep shoppers coming back. And local entrepreneurs continue to take their shot at expanding Knoxville’s retail culture, with new stores like Tori Mason Shoes on Market Square, Nest Knoxville in the 100 block of Gay Street, or Backroads Market & Designs off Sutherland Avenue opening this year.

Here we present three case studies of how local retailers make it work, each store at a different phase in its history: Smart Toys and Books is testing out a new business model. Five-year-old Union Ave Books has profited from lessons the owner learned in previous bookstore ventures. And River Sports Outfitters has withstood the test of time, selling camping gear, boots, and kayaks at a cabin on Sutherland Avenue for 34 years.

Tricia Bateman

Smart Toys and Books in West Knoxville actually shut down early this year—then was brought back to life by new owner Ken Zhou.

Smart Toys and Books
Tricia Bateman

Ken Zhou, a restaurateur who owns Little Tokyo in Pigeon Forge, was intrigued by the idea of taking over Smart Toys and Books after its longtime owner retired and closed the store at the beginning of this year. Lynda Blankenship had opened it “in a closet” in Western Plaza three decades earlier, and it had moved several times before settling in the center of Franklin Square in the 1990s, says Kelley Weatherley-Sinclair, Blankenship’s daughter and the current store manager.

Weatherley-Sinclair and Zhou sit a little awkwardly on the toddler-sized plastic chairs in one of the shop’s glass-walled “birthday rooms,” reflecting on the new business model. A customer’s thwarted child wails outside in the hallway while another bounces on a personal-sized trampoline. There is no spare quiet space in this store, which gave up 60 percent of its floor space to a playground dominated by a pirate ship.

Before Zhou and brother-in-law James Kao bought the store, they had no experience in the toy business. But Zhou had two kids he wanted to spend more time with, and his family had loved visiting the store. Blankenship offered to help him connect with her suppliers and select the items that sold best. Zhou’s hesitation was tied to worries about getting through the slow winter months and competing with online retail. (His own family had spotted toys there and then bought them online before, he sheepishly admits. They’ve since sworn off Amazon.)

Thus the idea for the playground was born.

Parents pay for their kids to play for two hours at a time, giving the store a second income stream while providing kids a chance to try out the merchandise. On a typical weekday, it’s a free-for-all: Toddlers are banging on drums, bigger kids are fleeing like Indiana Jones from the giant ball rolling toward them, and a squealing crowd of tiny rowdies is storming the pirate ship. A boy of about three spins the ship’s wheel madly while singing to himself and doing a rocking dance. His mom laughs below, swapping advice with another mother while their other kids rocket through tubes and slides together in the “Adventure Playhouse.”

“The playground guarantees a certain amount of traffic after Christmas, in January and February when you’re crossing your fingers that people come in the door,” Weatherley-Sinclair says. She knows from experience, because she grew up there. Weatherley-Sinclair jokes that she started working at the store “in the womb” and was selling and wrapping toys by age 6—not to mention occasionally “firing” employees (until her mother intervened). Now that she’s the same age as many of the harried young parents who frequent the store, her no-nonsense attitude still prevails. Her ponytail bounces as she whirls from the register to the free wrapping paper, tying the enormous bows that have made Smart Toys and Books’ gifts instantly recognizable at West Knoxville birthday parties.

The store always offered Kindermusik and preschool Spanish classes, plus story times and “Mommy and Me” art classes once a month, but Zhou has increased their frequency. Birthday parties now include a big block of private playground time. That has made them a more significant source of revenue, especialy paired with birthday toy registries. (Plus, kids have birthdays even in the dead of winter.)

Smart Toys and Books always sold a small portion of its merchandise online from its website, mostly to accommodate distant relatives who want to take advantage of the toy registry. But without sophisticated software, it’s tough to track when store inventory sells and is no longer available online, says Weatherley-Sinclair.

Local stores give customers a chance to try before they buy. Smart Toys and Books had long been popular among the Goldfish-munching set for its well-equipped train tables. But it now offers play tables for tiny sandbox sets, magnetic building shapes, construction equipment—you name it.

“As a parent, so often I would get something I thought would be a good toy, and my kids would play with it a few minutes and that was it,” Zhou says. “If a parent sees that a kid really loves it and goes back to it again and again, then they can buy it as an investment.”

Tricia Bateman

Union Ave Books downtown doesn’t just sell books—it provides a place that fosters the culture of reading.

Union Ave Books
Tricia Bateman

Located in the Daylight Building a few steps from Market Square, Union Ave Books offers anarray of browsing choices in a buttery-warm atmosphere punctuated by the fluttery welcome of owner Flossie McNabb. She can be relied upon to ask after your grandchild and offer a bowl of water for your dog. A veteran of erstwhile local favorite Davis Kidd and a previous co-owner of Kingston Pike bookseller Carpe Librum, McNabb packages an unusual combination of knowing everyone in Knoxville and having a kind thing to say about them all.

[Full disclosure: I am related to McNabb by marriage—but in another contradiction of the norm, this has only increased my exposure to her general goodwill.]

The store is a family affair, with McNabb’s daughter Bunny Presswood handling much of the buying while Havanese pup Scout pulls greeter duty.

“Independent bookstores can’t afford discounts to lure some people over,” says McNabb, a small woman with a sharp mind full of literary references and a voice that warbles like a bird’s. “We offer book-signings, readings, author events, children’s programs, wonderful displays, a cozy environment, all the things you can’t get online. That’s what we have to do our best at.”

McNabb and Presswood also choose carefully which categories to compete in: Union Ave specializes in independent bestsellers and doesn’t carry paperback romances (which are popular e-reader fodder) or mainstream bestsellers, both of which are usually cheaper online or even at grocery stores.

Brick-and-mortar stores like Union Ave can simplify gift-shopping when the customer isn’t sure what to buy. The bookshop has a wall of employee recommendations, a popular regional history section, and a wall of brainy children’s toys like magnet sets, organic baby blankets, and book-themed stuffed animals. Although the store has plenty of regulars, a large portion of its sales come from out-of-town visitors attending downtown festivals or the Saturday farmers markets.

Immersive experiences through classes and events provide lots of opportunities for people to connect with both the store and each other. Union Ave Books hosts two different regular book clubs and holds four to eight events a month, often author book signings and readings, and occasionally performances.

And when the book store is presented with opportunities, McNabb always strives to take all her friends—in other words, everybody—along for the ride. This summer, she spearheaded a popular “Where’s Waldo” tour of downtown businesses, with participants getting stamps on their Waldo passport for finding him hiding not only in Union Ave but 20 other downtown businesses, boosting traffic for everyone. When the store sells books at major author events at the Tennessee or Bijou theaters, it shares the profits with the Friends of the Library, because that nonprofit support group does so much to promote literary events, McNabb says.

It’s a question mark from one year to the next whether her store will break even, McNabb acknowledges. But unlike big online retailers, that’s not why she runs it.

“After this election, at least I have a place where I can go with like-minded people and I feel like I’m doing something halfway good,” she says.

And although brick-and-mortar stores must fight for every sale, they may be making gains as the localism movement broadens, McNabb says. Bookstore started seeing sales increase last year for the first time since the Great Recession. Their sales increased by 6 percent during the first half of 2016, according to U.S. Census bureau estimates. And the American Booksellers’ Association reported a 25 percent increase in membership since 2009.

Tricia Bateman

River Sports Outfitters opened 34 years ago on Sutherland Avenue when Ed McAlister got tired of driving to Kentucky to buy his whitewater paddling gear.

River Sports Outfitters
Tricia Bateman

Ed McAlister opened River Sports Outfitters 34 years ago when he got tired of driving to Kentucky to buy his whitewater paddling gear.

“I bought this house at foreclosure,” recalls McAlister, referring to the home of his flagship store on Sutherland Avenue, complete with comfy front porch. “I had no clue what I was doing, but I did it.”

McAlister’s joy in converting others—and willingness to seize any excuse to get outside—has made River Sports one of Knoxville’s leading retailers for creating community through its many classes, excursions, rentals, and “pint nights.”

“Rentals and classes are a growing portion of our income,” says McAlister. “Look at stand-up paddling. That’s one of our biggest rentals, and 10 years ago it didn’t exist here.”

That is a common trend in outdoor retail, says Rich Hill, president of the Grassroots Outdoor Alliance. The group, with 62 member outdoor retailers from across the country, held its third week-long buying show in Knoxville last month. The alliance began as a buying group seeking competitive prices from brands, but now members also share financial details and best practices with each other, Hill says.

“Our focus has always been making sure we’re promoting the activities and people having the best possible experience when they come in our stores,” he says. “We are there to take you by the hand and guide you to the right choice. And then this is how you use it, and here are the people you can participate with. Every touch point has a transaction value.”

River Sports provides a lot of touch points. It now has three store locations. It rented kayaks from its Sutherland Avenue store from the beginning, but 15 years ago it also started renting kayaks right on the water, eventually in places from West Knox County to Morristown (including at the Cove, Mead’s Quarry, Seven Islands State Birding Park, and Panther Creek State Park). It also rents bikes at some of these spots. McAlister says he plans to add more rental opportunities next year at locations he’s not ready to announce yet.

River Sports holds events from yoga to triathlon training, both at the store and out in nature. It now has a full-time event director. McAlister says he’s also guided trips on the Mississippi River and in the Grand Canyon, among distant destinations. “Even in the business, you continually define new adventures,” McAlister says.

On one of the first really cold nights of the fall, the store held its popular Backpacking 101 class, this edition focused on stoves and water filters. Participants crammed between aisles of water bottles, a sunglasses rack, and the knife counter because the rockers and benches in the store’s courtyard were too chilly. Holding their fresh-drawn pints of local craft beer—one guy was even double-fisting it—they didn’t seem to mind.

Instructor Nick Waller handed around different filters for weight comparison and offered insider tips that aren’t printed on the instructions: If you’re using iodine to treat water, Crystal Light powder helps kill the taste. Batteries are less efficient in the cold, so wear them in your armpits for a while before using your ultraviolet light water treatment system.

UV is great at sterilizing. “It’s a good post-apocalyptic option,” Waller says. “Whatever spawns the zombies, this will take them out.”

Most participants have some experience, although it may be outdated. One woman asked frequent questions about what would work best on an Appalachian Trail through-hike, and requests good trail recipes. (Waller shares a favorite one for trail pizza.) Another guy explained a way to back-flush a dirty water filter with a Smart Water bottle.

Such classes not only forge relationships but also encourage people to try an activity that might intimidate them without a guide to get them started, McAlister says.

“To me, our business is not selling product necessarily. We sell product to survive,” he says. “It’s allowing you to experience something that may change your life or give you a great hobby.”

Seventeen years ago, River Sports became one of the first in the South to open an indoor climbing gym, offering what McAlister says was the first high school climbing league in the country. Today, 15 schools have climbing teams, much like a cross country team, competing nine months of the year.

“I look at kids that came in here as eighth-graders at Bearden or West, and now some of those people are winning the Triple Crown (southeast bouldering competition), and people who were employees here are rising through ranks at major companies,” McAlister says.

This year has been tough for big outdoor retail chains. Eastern Mountain Sports, Sports Authority, and Sports Chalet went bankrupt and flooded the market with merchandise being liquidated at a discount—creating further challenges for independent outdoor retailers.

Still, Hill says the indies are doing well.

“Granted, it’s harder than it’s ever been,” he says. “But all the data we see is our stores are healthy. We connect with our local communities and we provide a service. Our store sales are up over last year, and our financial health is greater than a year ago.”

Tricia Bateman

Union Ave Books

The Knife Fight

In 1995, River Sports became one of the first outdoor stores to sell its products online, McAlister says. While it remains in the game, he says, “We’re not a huge player. That is a vicious animal out there. If you don’t have millions of dollars to throw at it, you probably don’t want to get in it.”

Hill says many of his organization’s members had moved into online Web sales but are now cutting back. “It’s very competitive, very price-driven, so it’s kind of counter to how we operate,” he says. “We’re service, we’re experience. The Internet is a knife fight.”

Most American brands generally demand that retailers sell at or above an approved price. But then the companies often don’t police online retailers, which leaves rule-following local stores at a disadvantage.

“The problem is there are so many rogue seller on the Web,” McAlister says. “Amazon is one of them. They have an algorithm that if I change my price by a penny, they automatically go 10 percent down or more.”

Although River Sports is a third-party seller on Amazon, McAlister says some other third-party sellers are fly-by-night operations that swoop in to undercut prices, then disappear.

But outdoor retail stores are such players in creating brand loyalty that it gives them some leverage with brands, Hill says. “When a customer buys a sea kayak or Osprey backpack, that person will buy that brand the next 20 to 30 years,” he says. “Brands recognize that.”

That holds true in some other types of retail, too. Zhou’s store sells the popular Magformers building toys at the company-approved price, but Amazon sells them at almost wholesale, Zhou says. He called the manufacturer to discuss the problem, and Magformers representatives agreed to start following online prices and pursuing the retailers that are selling at unapproved discounts.

Smart Toys and Books also avoids competing with rogue pricing by stocking toys that are hard to get online and in major toy stores, Zhou says. Among them are science and robotics kits and Breyer brand collectible horse toys, which people travel from Chattanooga to buy.

River Sports and other outfitters often focus on fashion and performance-driven items that change seasonally, Hill says. Those products don’t do as well online as items that are less specialized and unchanging, like an Igloo cooler.

Zhou says people sometimes ask him directly why they should shop at his store when they can find products cheaper online. He points out that those sellers aren’t vested in the community. For example, they don’t donate toys for gift basket raffles benefiting West Knoxville elementary schools, like Smart Toys and Books does. On Veterans Day, Zhou notes, some retailers were offering one-day discounts to vets. His store gives a 10 percent discount all year to veterans, teachers, and emergency personnel like police and fire fighters, to express thanks for what those folks do for the community.

The biggest events at River Sports Outfitters are pint nights that support local outdoors and environmental organizations and can attract from 250 to 400 people, McAlister says.

“When we first started these things it would draw just the people interested in that issue—the climbing community, or mountain bikers, or paddlers,” McAlister says. “And they had so much fun they started cross-coming. They all started networking, and as a result maybe a climber became a boater or a boater became a biker, and they made friends in those arenas.”

The pint nights began to support broader initiatives like the Cumberland Trail, bringing both donations and new volunteers to the cause. “People interact and end up doing positive things for the community and the outdoors,” McAlister adds.

After Smart Toys and Books reopened, Zhou and Weatherley-Sinclair were approached by many parents who wanted to hug and thank them. Weatherley-Sinclair recalls parents who reported weeping in the parking lot when they pulled up in January to find the store closed.

“People said, ‘I didn’t realize how important this store was to my family,’” Zhou says. “I had one person say to me, ‘I realized if I want stores to stay around, I need to support them.’”

By the Numbers

Online Shopping’s Real-World Effects

39,000: Number of retail storefronts (based on equivalent sales) that Amazon displaced in 2015

735: Number of Tennessee retail storefronts (based on equivalent sales) Amazon displaced in 2015

222,000: Estimated number of retail jobs lost due to competition with Amazon in 2015

172,000: Estimated number of retail jobs lost due to competition with Amazon in 2014

51: Percent of total purchases online shoppers reported making online in 2016

54: Percent of purchases millennials say they make online

20: Percent of “store-only” purchases made by consumers (with no comparison shopping online)

Sources: American Booksellers Association/Civic Economics report “Amazon and Empty Storefronts,” UPS 2016 “Pulse of the Online Shopper” report

S. Heather Duncan has won numerous awards for her feature writing and coverage of the environment, government, education, business and local history during her 15-year reporting career. Originally from Western North Carolina, Heather has worked for Radio Free Europe, the Institute for War and Peace Reporting in London, and several daily newspapers. Heather spent almost a dozen years at The Telegraph in Macon, Ga., where she spent most of her time covering the environment or writing project-investigations that provoked changes such as new laws related to day care and the protection of environmentally-sensitive lands. You can reach Heather at

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