October 26, 2014

Winners and Losers in the Online vs Brick and Mortar Battle

CREOutsider, commercial real estate blog photoThere’s been a few skirmishes in the battle between traditional brick and mortar and online retailers lately.  In case you missed them, here’s a summary with my scorecard for who wins or loses.

Online Sales Tax

Amazon.com dropped its opposition to an internet sales tax.  Why? No…it’s not because of the “same day delivery” scheme Slate suggested. The company has always tried to streamline logistics (shipping is one of their largest expenses) and probably determined state distribution centers were the way to go.  Since Amazon will now have a physical presence in each state, why put themselves at the disadvantage of being the only online retailer that has to collect sales tax from everyone?  So they’re okay with the feds making all online retailers collect tax and states twisting the nexus statues to include a virtual presence.

One more interesting part of the proposed internet sales tax.  With quaint names like the “Main Street Fairness Act”, these laws imply the government is looking out for the little guy.  I don’t think B&M Mom and Pops are going to think they’re being looked out for with the proposed exclusion for online vendors with $500K – 1M revenue.

But anyone who thinks the internet tax is about anything other than the states getting more money from consumers to feed their bloated budgets is crazy anyway.  And the exemption makes sense for the states so they won’t have to deal with thousands of small filings.

Online – Losers!  But in areas with poor local selection, not a big effect.
B&M – A win.  For now.  Just wait for the day when B&M stores have to determine the purchaser’s home state (and collect/file on their behalf to each state!).  That’s the law.  And if there’s more money to be had, don’t think the states aren’t going to go after it eventually.
Mom & Pops – A draw.  If there’s an exemption, it’s good for small online retailers, but doesn’t do much for small B&M shops.

Same Day Delivery

That Slate article still caused quite a stir by calling Amazon’s same day delivery the ultimate B&M killer.  But according to a rep from Amazon, they “don’t see a way to do that on a broad scale economically.”   The article went on to say that it’s probably not even viable within a state.

But notice Amazon said “broad scale.”  There’s no reason to think that Amazon could institute same day delivery in some areas.  It’s a matter of having the right products in the right markets – like online grocers who are finally thriving after years of toying with the model and figuring out how to make it profitable.

Same day delivery works primarily in large markets – and not just for large retailers. Small vendors that offer something unique can get away with higher pricing and smaller inventory.

Online/ B&M – A win for both.  This is the perfect mix of new and traditional business methods.
Mom & Pops – A draw.  It’s an opportunity for innovative small shops but most don’t have the means (or product) to make this work.

Credit Card Swipe Fees

The major credit card companies just settled with a group of retailers regarding the fees they charge for credit card purchases.  Originally, the fees could not be passed to consumers.  Not anymore. Now retailers can, if they choose, charge credit card users.

Under the agreement, retailers must alert buyers about the credit card surcharge which means the posted price will be for cash.  Consumers will get hit with the 2-3% fee at the checkout when they’re not likely to complain.  But most believe that swipe fees are already baked into pricing so maybe the big retailers won’t differentiate.  Savvy consumers, however, could start pushing for cash discounts.

However this plays out, it puts brick and mortar stores at an advantage since online retailers have little choice but to take credit cards or use another fee service like PayPal.  Buyers could use debit cards online, but that’s considered risky and even those incur some fees.  This will also create havoc with price comparison apps, though retailers have been doing their best to undermine the effectiveness of those anyway.

Supposedly the biggest beneficiaries of this settlement are the small vendors who normally pay higher swipe fees.  But as fewer people carry cash or checks this may not be much help at all.  Only reliable alternative payment schemes will dislodge the credit card payment monopoly.  Also, watch for a resurgence of store credit cards.

Online– A draw.  It depends on how B&M stores handle the pricing difference.  If large chains offer in-store cash discounts, then the price differences would drive purchasers back to the store for all but hard to find locally products.
B&M – A win. They’ve now got a marketing advantage – lower prices than online – if they want to take it.  Plus, they could gain from increased usage of store credit cards which consumers can also use online.
Mom & Pops – Also a draw. Hard to tell how small shop clientele will react to paying more to use credit or if carrying cash makes a resurgence.

Photo by zoetnet.

Comments

  1. Was Borders a “winner”? I can’t quite remember… ;-)

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  1. [...] But anyone who thinks the internet tax is about anything other than the states getting more money from consumers to feed their bloated budgets is crazy anyway.  And the exemption makes sense for the states so they won’t have to deal with thousands of small filings.  read the rest (Source: CRE Outsider) [...]