Wednesday, September 5

Shopping Online: The Sales Tax Issue

As Pennsylvania becomes the newest state to require online retailers to collect a sales tax on residents, Pennsylvania Secretary of the Department of Revenue a.k.a. chief tax man Dan Meuser says it will level the playing field for brick-and-mortar businesses. But will collecting a sales tax really level the playing field?

If brick-and-mortar businesses really believe that, then they have fallen behind further than I ever thought. According to eMarketer, more than 72.6 percent of Internet users bought online on 2011, representing 148 million people (ages 14 or more) who made at least one purchase. Thirty million more are expecting to join them by 2015.

There have been dozens of studies published about the motivation of online buyers. And almost none of them place avoiding sales tax at the top of the list. What are some of the reasons people shop online?

Ten reasons that people shop online instead of offline.

1. There are no store hours online so they can shop online any time.
2. They can comparison shop between stores and find better prices.
3. They are given discounts to shop online by brick-and-mortar stores.
4. They never have to worry about crowds or checkout lines.
5. They can find things easier instead of searching racks and shelves.
6. They don't have to associate with cranky salespeople or pitches.
7. They are never sent to another store because of out-of-stock items.
8. They don't have to spend money on gas, driving to different stores.
9. They can see what other people are saying about products and stores.
10. They can do it alone and from home, wearing whatever they want.

Sales tax doesn't even register. Other then discounts and clearance sales, the biggest incentive that online buyers look for is free shipping. Shipping is something people prefer to avoid. That's about it.

But in looking at the list, brick-and-mortar stores have much more work to do than worry about sales taxes. In order to compete with online retailers, they have to create experiences online transactions can't offer their customers as well as capitalize on the reasons people sometimes prefer to shop offline.

Ten reasons that people shop offline instead of online.

1. They enjoy store-hosted events and special appearances.
2. They are still wary about online privacy and security.
3. They want to try on clothes/shoes and match up outfits.*
4. They find it easier to take in the entire store at a glance.
5. They like to window shop and visit other stores in proximity.
6. They consider shopping a social experience and enjoy it.
7. They don't have to wait for the item to arrive by mail.
8. They like knowledgeable employees on hand to help.
9. They don't worry about being spammed after one purchase.
10. They enjoy making discoveries they would have missed online.

*This includes hearing a sound system or test driving a car, etc.

There are more, but most of it revolves around the experience. The question brick-and-mortar stores have to ask is whether or not they are giving shoppers a reason to come in the store. With the exception of best practice independents (e.g. Book People in Austin, Tattered Cover in Denver, Amoeba Records in Hollywood), most stores don't.

Some of them (especially bigger brands) effectively cannibalize their own in-store customers by trying to convert them to online shoppers by offering better follow-up deals than their customers could ever find in the store. In essence, the online component of transitioning brick-and-mortar stores is creating a self-fulfilling prophecy. Instead, retailers ought to be working to erase the online/offline distinction.

The future of brick-and-mortar and online retailers. 

Although I often wonder how many times government can tax the same dollar (taxes are levied, frequently more than once, every time money moves from one place to another), requiring online retailers to pay online state sales tax has very little to do with fairness and everything to do with state tax revenue. They might as well stick to that statement because they aren't helping brick-and-mortar stores, most of which are trying to develop some semblance of an online presence or online storefront.

Right. The reality is that brick-and-mortar stores as we knew them are nearly obsolete as even independent sellers have to develop an online component where they can increase sales beyond walk-in traffic and/or stimulate walk-in traffic with special appearances or events. What many haven't done yet is map out the potential symbiotic relationship between high tech and high touch, but they will. Eventually, every store will be best described as brick-and-click and not one or the other.

The future of retail is one where you can use mobile apps or online sites for in-store assistance, with off-site solutions when you can't find the size or color or whatever you want on hand. It's one where if you purchase a book from the store, you might receive an email or posting any time that author makes a book tour visit. It's one where you can try something on in the store and save your sizes or preferences for updates, referrals, and future purchases (online and offline). It's one where search engines are somewhat circumvented because the store earns consumer trust and loyalty. And so on and so forth.
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