Leveling the Retail Playing Field
If you're having mixed feelings about the Supreme Court’s South Dakota v. Wayfair, Inc. decision, you're not alone. With the ruling that e-commerce retailers are now responsible for paying state sales tax, brick-and-mortar stores hope the decision will level the playing field against their online counterparts. Even with the SCOTUS’s landmark decision behind them, it may not give physical retailers the boost they need to compete with the Amazon.com's of the world.
Tax Exemption Enabled Amazon’s Scale, But Didn't Sustain It
In addition to unlimited assortment, Amazon was able to achieve its massive scale for two critical reasons: lower prices from sales tax exemption led to high sales growth, and the investors that were willing to fund the operation at negative margins due to this sales growth. Amazon then leveraged its scale into lower costs and broader services than its competitors.
Unsurprisingly, it's been estimated that large online retailers, like Amazon, have greatly benefited from sales tax exemptions. One study says the former exemption gave e-commerce companies anywhere from a 4 percent to 11 percent price advantage over brick-and-mortar retailers.
While these exemptions fueled Amazon’s growth in the beginning, it's the company’s philosophy to start with the end in mind, focus on the customer experience, early adoption of modern technology, and investments in innovation that have sustained its growth. A little sales tax won't threaten to change that.
The Lowest Price Doesn't Always Win
Amazon’s success is about more than just having the lowest price. In the early days of e-commerce, shoppers were enticed by the idea of not paying sales tax. These days, the allure of online shopping has less to do with overall item cost and more to do with the shopping experience — the personalized supply chain, convenience, assortment options, sustainability, brand loyalty, and so forth.
Tax-Free Online Shopping is Now, And Has Always Been, a Myth
Thanks to state sales tax exemptions, shopping holidays are an exciting opportunity for consumers to save money. Yet what shoppers don't realize is that taxpayers are, in fact, required to declare their online purchases within their annual tax returns (you do, right?). Technically, states should have collected tax on internet purchases then, and still should today. If there were an additional tax for internet purchases, on top of normal sales tax, that might change the way we shop. But for now, paying the tax consumers do on every other purchase won't rock the retail world.
Amazon is Already Too Big to Fail
Sure, the SCOTUS decision may create some small advantages for physical retailers: online retailers will be swimming in compliance regulations for some time and physical stores will retain the ability to offer truly tax-free days in stores. But while the Supreme Court ruling levels the playing field for all retailers going forward, no ruling can undo what Amazon has already done.
Retailers, both physical and online, will need to work to replicate or outsmart the Amazon experience. Stay close to your customers, understand their desires, and work backward from there. Find white space in the market and fill the gap with a shopping experience unlike any other. Invest in technology that fuels innovation to create the store of the future. Hire and train the best brand ambassadors, and mimic the online tactics of Amazon to achieve scale. Now that the sales tax playing field is level, there's no excuse not to.
Matt Simonsen is the director of offer management, Infor Retail, a fully integrated, cloud-based technology suite.