Main Street Fairness Act
By Garrick Brown, research director, Terranomics
Probably the most important bit of news for bricks-and-mortar retailers that broke over the past week is that the Senate voted to move forward with the Marketplace Fairness Act. This is legislation that was sponsored by the International Council of Shopping Centers (ICSC) and that was sponsored in the Senate by a bipartisan group led by both Republicans and Democrats. The bill simply closes a loophole that has existed ever since the rise of the internet in terms of the collection of state sales taxes.
Under the current system, consumers in most states are responsible for paying state sales taxes on items that they purchase through the internet. However, because a collection mechanism was never put in place, almost none of these sales tax revenues are ever collected. The consumer is responsible for declaring these and voluntarily paying these which, of course, they don’t. The implications are different depending upon the state. After all, some states have no sales tax and in some cases, e-commerce players are charging local sales tax depending upon their circumstance).
Let me give you an example. I live in California and have a local sales tax of roughly 8%. If I were to go into Best Buy and purchase a $1,000 big screen television, I would be looking at an additional $80 in sales taxes. However, were I to shop around on the Internet and found the same television at the same price, there is a very good chance (depending on the e-commerce retailer) that I could purchase that same item and not be charged for the local sales tax. Now let’s make this clear — under my local state law I am responsible for paying that tax. But because there is no collection apparatus in place on the retailer side of the transaction it is up to me to voluntarily declare that purchase and pay those taxes on my annual income taxes. Do you think I will? If you guessed no, you are probably right. In fact, the estimate is that roughly $28 billion in sales tax revenues go uncollected because of this loophole.
But let’s look at the impact of this loophole. In essence, e-commerce retailers are given a pricing advantage of anywhere from 5% to 10% (depending upon the state involved) over their bricks-and-mortar competitors. And keep in mind that e-commerce players already have a huge edge built into the system simply because they face nowhere near the same levels of overhead as bricks-and-mortar stores. They pay nowhere near the overhead of bricks-and-mortar players in terms of rents (they use warehouse space instead of much pricier retail square footage). They generally have lower shipping costs (their goods are usually coming out of one central mega distribution warehouse whereas the television in the store likely passed through a couple of staging areas before landing in my local Best Buy). And they have nowhere near the level of overhead when it comes to employees (a bulk e-commerce distribution center may employ 1,000 workers to cover the entire Western region of the country, whereas bricks-and-mortar employees for a company like Best Buy across such a region will easily five to six times that). The fact is that e-commerce players already have a considerable edge. That $1,000 television at Best Buy likely is already being priced at $850 to $900 at most by their e-commerce competitor. Against this backdrop, is it any mystery why e-commerce retail is exploding while we are seeing contraction from so many sectors of retail?
The fact is that this is killing some categories of retail (big surprise that consumer electronics is one of the sectors feeling the pinch most). Without the extra advantage that this loophole gives e-commerce players, bricks-and-mortar players still have a challenging road ahead. But this extra advantage was never meant to be there and was only created because our legislators never had the foresight to address closing the loophole on the issue of actual sales tax collection. The passage of the Main Street Fairness Act will slow the erosion of bricks-and-mortar retail. It will save jobs. It will help bricks-and-mortar retailers, and especially small retail businesses, compete on a more balanced footing with e-commerce. It will collect revenues for the states that are currently unable to collect these revenues and likely alleviate pressure at that level to raise other taxes to deal with local deficits. And it will only have a minimal impact on the e-commerce players that it impacts because they still have an overwhelming pricing advantage over bricks-and-mortar retailers.
This bill was sponsored by the ICSC — hardly a left leaning, pro tax and spend group, but a lobby that typically is linked to Republican pro-business causes and that receives most of its backing from retailers, developers and shopping center owners. This bill has the support of most of the major retailers active in the marketplace today; ranging from Walmart to Target and nearly every other major chain. This bill was even endorsed by Amazon in February, the single e-commerce player that arguably has the most to lose by its passage.
The passage of this bill should be a no-brainer. It is one of the few issues that people on both sides of the aisles can agree upon. It is pro-business, pro-jobs and pro-fiscal responsibility in that it collects unpaid revenues that are due and will ultimately lead to less taxing pressures at the state level. But here is the catch: Last Monday, the White House endorsed the bill. This is something one would expect for common sense legislation sponsored by senators of both parties. But ever since then, there has been increasing talk from tea party Republicans in the House of Representatives of either blocking this legislation or proposing some sort of counter legislation that will essentially render it ineffective.
Since President Obama’s endorsement, a number of AM talk show hosts have entered the fray, generally misrepresenting the bill as a new tax and then denouncing it as yet another attempt by tax-and-spend nanny state socialists looking to redistribute wealth to the moocher class. And, of course, this bill has always been opposed by Grover Norquist and his quasi-libertarian Americans for Tax Reform lobby. They too have been eager to brand it as a new tax that is diametrically opposed to their philosophy that the only way to get smaller government is to starve all government — regardless of the situation or circumstance. Obviously some see merit in those arguments and to those of you who do, we will just have to agree to disagree. And I am not completely willing to dismiss the increasing wave of opposition as merely being kneejerk dysfunctional politics, though I can’t help but wonder if any of this would have happened had the President not opined on the subject. Instead, what I find most disturbing are the distortions of what this bill is, what it will do and even who is for it. The world’s largest retail chains, the ICSC, the development community, institutional real estate owners and the commercial real estate industry in general are hardly a bunch of extreme left, Weather Underground loving Berkeley hippie radicals. I vaguely remember a day in this country when legislation like this would have been viewed as having an overwhelming pro-business and pro-jobs stance. Regardless, I still maintain that this is one bill that should be a no-brainer for representatives on both sides of the aisle. And it is, for most of our representatives (it is still only a small, but vocal, minority that is talking about trying to block it). This bill will save jobs, help the overwhelming majority of retail businesses (especially small business) and, yes, bring in some much needed revenues to the states that they should have been collecting all along while erasing an unfair trade advantage that is currently in place. If one’s opposition to this legislation is solely based upon that last point of being anti-revenue in all cases, they should at least consider the impact of doing nothing on jobs and the retail landscape in general.
All this being said, I am hoping that cooler heads will prevail once this bill reaches the House of Representatives and I am optimistic that it will pass. The overwhelming majority of my subscribers are active in retail real estate, and I know that most of you are in favor of this legislation. But it is imperative that you voice this support to your local representative. Don’t let this common sense bill become the victim of Washington’s ongoing dysfunctional gridlock.
Walmart touts next growth engine
E-commerce was labeled Walmart’s next growth engine by Neil Ashe, the retailer’s president and CEO of global e-commerce during an investor presentation Wednesday morning.
Speaking at the Barclay’s 2013 Retail and Consumer Discretionary Conference in New York, Ashe laid out a vision for Walmart’s approach to e-commerce that involves home-grown technology, a deeper integration with physical stores and a dramatic expansion of product assortments because Walmart is one of the few companies who has brand permission to sell everything to everyone. He also said Walmart was committed to being at the forefront of technological innovation and this week planned to introduce a new home page that reflects how people want to shop. Ashe said Walmart’s simple, yet audacious e-commerce goal is to, “know every product and person in the world and have ability to connect them.”
To do so, Ashe said Walmart made a decision last year to in-source development of its technology which led to the creation of a proprietary search engine.
“We can’t do what we need to do and want to do with off the shelf solutions,” Ashe said.
Development of the search engine and other technological capabilities are essential to the philosophy outline by Ashe which calls for Walmart to excel at the fundamentals of e-commerce.
“If you want to build something really big that is going to last forever you better get the foundation right,” Ashe said.
In addition to technology, Ashe also described other foundational elements of Walmart’s approach as customer acquisition and retention, category development and assortment, customer experience and fulfilling promises.
Although Ashe, who joined Walmart in January 2012, characterized e-commerce as Walmart’s next growth engine he made no reference to Walmart.com’s sales or financial contribution and there was scant discussion of other performance metrics aside publicly available details from third parties. For example, Walmart.com has 45 million unique monthly visitors and the company’s home delivery operation in the United Kingdom is the second largest.
Walmart currently has an e-commerce presence in 10 countries, but is primarily focused on driving growth in the U.S., China, Brazil and the United Kingdom, where an investor field trip was held last week.
Domestically, Ashe was asked about the impact of the Marketplace Fairness Act and the impact of a level taxation playing field. He quoted former Walmart president and CEO Lee Scott who once questioned how a 5% to 10% price difference wasn’t a competitive advantage. According to Ashe, Walmart sees its best growth in states where sales taxes are collected from all players.
Jo-Ann hires former Disney, JCP exec
Hudson, Ohio — Jo-Ann Fabric and Craft Stores has hired former Disney and J.C. Penney’s executive Kris Arabia as VP of product development. Arabia will report to senior VP and chief marketing and merchandising officer Riddianne Kline.
Arabia, who was most recently divisional VP of sourcing for home at J.C. Penney, will oversee the fabric and craft retailer’s design and trend, global sourcing and production and quality control and compliance departments. Additionally, she will assume responsibilities for managing overseas agency relationships.
“Our goal remains the same: deliver quality products to our customers at a great value,” said Kline. “We are thrilled to have Kris, with her tremendous experience in retail sourcing, leading our in-house product development and trend forecasting efforts to help us accomplish that goal.”
Prior to J.C. Penney, Arabia held various sourcing positions with Walt Disney, Pottery Barn, Bath & Body Works and Mikasa. She is a graduate of the University of California, Berkeley. She, her husband and their four children will be moving to Hudson, Ohio, to the company’s corporate headquarters.
Jo-Ann operates approximately 800 stores across the country.