Santa Shopped Online This Year

An anonymous reader writes "ZDNet is reporting on another blockbuster year for online shopping. Online shopping was up almost 30 percent over last year." From the article: " Clothing was the top seller in terms of dollar amount, at $5.3 billion total, up 42 percent from last year's revenue, the report said. Computer hardware and peripherals showed the most growth, 126 percent, at $4.8 billion. Consumer electronics was the second fastest growing category, garnering $4.8 billion, up 109 percent. People spent $3 billion on books online, up 66 percent, and $2.3 billion on products in the toys/video games category of hardware and software, a drop of 9 percent from last year, the study found. "

Comments

So how long ..

[vodkamattvt]

before the gov't demands all those juicy sales taxes? You know its coming, especially after the huge growth in online sales every year.

That's Odd...

[scheming]

I got nothing at all for christmas this year... :(

figures for pre-xmas only

[welcher]

The summary doesn't seem to have it quite right: the $30b is an estimate of what was spent 31 Oct - 23 Dec. Which is 30% than same estimate last year. But, FTA, another company did a survey for a similar period and found total sales to be $18b, up 25% from the previous year. Which all goes to suggest there isn't an agreed measure of online spending ...

Clothing, eh?

[06metzp]

It seems odd that clothing would be the top seller online, given that it involves more to return/exchange items to an online store than a regular store if the clothes should happen to be the wrong size.

From a retail store owner

[dada21]

I own 2 (and 1/2) retail stores in the Midwest US, and this will be our final year in retail.

Our inventory was better than or equal to more dotcoms. Our service was better (30 day DOA or defect replacement and lifetime labor). Our pricing was equal. Our hours were "better" since we were open 7 days a week.

What killed us? Sales tax. Our average sale in 2005 for about $230 (we sell paintball, skateboards and a ton of clothing). At 7%, we were consistently $16+ over per average sale than the dotcoms, even with instant acquisition.

2005 was our best year ever, so we're ending it at the top. Next year's outlook is bleak as many states want to raise sales tax and other fees. No thanks. In 2005 I paid more in sales tax than I did in payroll.

I'm not mad, actually -- the dotcoms are a great way to save money AND screw the state. I feel bad about my customers who loved our store, but I also know many bought online for the higher margin items that didn't need servicing (we were not competitive on those items as we had to price in future service and were always about 20% higher).

Local communities WILL suffer, though. Retail sales can be a big income base for the local community -- my mechanic performs almost 80% of his work for retail employees' cars. My dentist has almost 1/3rd of her patients working in retail. As retail suffers, these secondary markets will also suffer. But the positive is that the money we save in retail by shopping online should offer us more money to spend on other things.

It was a great 5 years, I did very well financially, and in the end, the state decided they didn't want me around -- otherwise they'd have ended the vile sales tax that is quickly ruining retail.

Re:From a retail store owner

[GoodOmens]

So wait, you were able to succesfully compete with online retailers AND make a profit but your shutting your doors just because you don't like giving the state money?

That doesn't make any sort of buisness sense as you stated 2005 was your best year (and you also pointed out you did very well financially.)

Re:From a retail store owner

[dada21]

I've been in business for 16+ years (a variety of businesses). Retail wasn't my thing -- my wife begged me for a store and then I got hooked. We do constant market analyses to stay ahead of the competition -- online and brick and mortar. The outlook for next year looks BAD. My political views might seem to some a little aggressive, but I forsee a bad recession starting, and the retailers will get slammed, in my opinion.

There's an idea I have that many people throw good money at bad problems -- I won't do that. I'll lose about $100,000 closing the stores, but that's better than losing 4 times as much if things go sour. This year was exceptional because we finally overcame some starting costs (build outs and the rest) that I paid out of my pocket. I do NOT see good things ahead in 2006, and I don't want to take that big of a risk.

Re:From a retail store owner

[dada21]

I'm not sure I understand how you went out of business.

We didn't go out of business, we're making the choice to close our doors -- big difference. In every business, in every market, there comes a time when the old ways are obsolete. Ma and pa retail stores are pretty much antiquated, so I figured we'd best get out on top. One of my 3 stores closed up on its own (major cash flow problems and a very disloyal community), so I found my exit strategy and took it.

Also, since you so clearly identified the problem (and have great understanding of it) what would you propose a solution to be?

There is no solution. It is so convoluted, but in the end I have to blame government -- and I know I'll get flamed for saying that.

Look at it this way:

1. Our rent is outrageous -- almost $18-$25 per square foot. I fully blame this on the Fed's easy credit and a massive amount of "new" money entering the property market. There is no way my main store's rent should be $5000 per month -- but it is! This is in a town of 4000 people, mind you.

2. Our payroll is outrageous -- for every $1 I pay my employee, I have almost $1.50 to also pay to government and accountants (because of the tax laws). There's no way around it, especially since the warehouses who sell for the big dotcoms hire people either at minimum wage, or as contractors below minimum wage. I have friends who work at the big dotcoms in the warehouses and they're practically slaves.

3. We pay 7% to sales tax, plus the an additional 3.5% to accountants to handle the sales tax. One store files over 45 different forms a year for various government bodies. This puts us at a significant penalty over companies that don't have to pay this portion.

4. We pay a larger portion in shipping -- we don't move millions annually so we don't get the same discounts as the big guys.

But its ok! The dotcoms won because they were more efficient. Yes, my customers who lose me will lose great service and a very community oriented business, but if they weren't willing to pay the extra 15-20%, why should I take a big risk?

Retail is dead, except for the megacorps who have ways around the issues plaguing me. I recently found out 3 super stores in my neighboring town get a sales tax rebate -- they charge 7% to the consumer but get to keep over half of it. Yeah, that's fair.

Re:From a retail store owner

[fimbulvetr]

He has another comment here:
http://slashdot.org/comments.pl?sid=172698&cid=143 75640

Basically, he has an exit strategy. Something a lot of people with businesses/investments don't have. An exit strategy is essential and following it is even more essential. Personally, I applaud him for such a move. He might lose some money on it (Costs of shutting down, lost profits), but chances are good that he's probably going to be correct more often than not on the signals he's getting. Sometimes it's just better to quit while you're ahead, especially in a case like this when he can see some clouds moving in.

Re:From a retail store owner

[GoodOmens]

Fair enough response. A little more clear :-).

Sounds like you should just join em. Keep your invetory, buy cheap space where realestate is cheap (ie where window shoppers dont go .. or hell to start this venture move to your garage). Get a internet connection and open a online store ;-).

With some decent marketing using google adsense you will have customers in no time.

North Carolina already does...

[artemis67]

however, it's up to the individual to volunarily report all internet purchases on their state tax form, so it's a wonder why they even bothered to pass the law.

Cracking down on use taxes

[Yartrebo]

I wonder if online retailers would change their tune if there was a major crackdown on people evading paying their use taxes. When you buy something online, you are responsible to pay your state a tax equal to the difference between the local rate and the rate you paid (essentially the full sales tax for most online purchases). It isn't that hard to track violators. If ABC web shopping doesn't collect sales taxes AND a citizen of the state received a package from them AND said citizen filled in $0 for their use tax, one can deduce that said citizen underreported their use tax by at least that amount. A list of packages could be generated by forcing companies making local deliveries to report a list of all packages delivered (this would require a federal law as it falls under the Elastic Clause of the Constitution). If you cannot provide the receipts proving you accrued no more use tax than you declared, then you pay the tax with penalties and interest.

Personally, I feel it would be a lot easier and trample on far fewer liberties to just have the web retailer collect sales tax.