Shawn Massey, CCIM, SCLS

Where did this box come from? The Seduction of online retailing!

On any given night any of us can arrive home from work and right by the door will be a delivery box from some online retailer.  For most of us the only thought maybe the cost and frequency of packages being delivered.  For me, my co-workers and thousands of industry colleagues in the retail real estate business this is literally a stab in the back by all these online purchases as we make our living from the development, leasing and management of retail shopping centers sometimes referred to as “Bricks & Mortar” retail.  I recognize the allure of ordering online from cheaper prices, free delivery and convenience.

One of favorite pastimes over the years was spending hours in the local bookstores.  I could wallow away an afternoon looking around and reading excerpts from new writers that I had not read yet while my daughter would be seeking a new book in the young readers section.  It was our thing, an obsession past down from my father to me.  My father was an avid reader and when he passed away we pack up over 10,000+ books he had read during his lifetime.  We had to go to three used bookstores to sell them all because no one store could handle that influx of books.  The bookstore was not simply a retail store, but a way of life for those of us who love to read.   My heart would palpitate when I see one of my favorite writers in hardback at the discount table because as I would rarely pay for anything more expensive than a paperback.  I would find a new writer I really liked and then head to the used bookstore (I am pretty frugal) to buy all of his/her other books for my library and disappear for a weekend of reading. My newest addition, to my family is my eight month old son.  He loves to handle and touch his books, he enjoys sitting in our laps while we read to him and sometimes tries to eat them.  It was over two years ago I received a new Kindle reader as a Christmas gift.  A truly wonderful and thoughtful gift for any avid reader.  I could have any book in mere seconds downloaded to my new best friend.  I could travel with 10,000+ plus books in a device the size of a file folder.  A year later I received another gift an iPAD that gave me all my books and in color.  I was hooked!  I always wonder what my father would think of these wonderful devices.  Thus began my own seduction of buying on-line.  Now that I think back to it may have started a few years before with a national CD club (prior to my iPod) where I was offered monthly by mail to purchase one CD online and I would get three free delivered right to my door.  It was a great way to build my music library quickly and at a lower cost.  So even this retail real estate advisor was seduced by the lure of online retailing without really knowing it, and I understand why people choose to buy on-line.

 If you research on-line this retailing war between the traditional retailers and the online retailers you will find numerous articles titled which such phrases as; Online versus Bricks & Mortar, Bricks & Mortar versus Dot Com, and Bricks & Mortar versus bits & Bytes to name just a few.  You will see numerous articles on states trying to enact laws to have these internet retailers collect a sales tax which do not currently help level the playing field for local, regional and national retailers who have a physical presence in our communities.  I am firm believer in the fact that we need to support these efforts.  I could easily write the arguments for these laws, but our industry retail leader ICSC has done the job for us all.    If you go the following website: http://www.21stcenturyretail.org/  you will see numerous articles and other information on this fight.  Below is excerpt from David Simon with Simon Properties that is located on their blog that outlines what is going on and what we need to do as an industry.

Congress Must Act NOW

by David Simon   January 26, 2012

Competition is a necessary part of a thriving retail marketplace. But in order for there to be real and fair competition, there has to be a level playing field. We need a business environment in which all retailers can grow, create jobs, and continue to drive the American economy. Brick-and-mortar retailers have for too long been put at a tremendous disadvantage by an antiquated sales tax framework that clearly benefits online retailers. Therefore, we are calling on Congress to support S. 1832, the Marketplace Fairness Act and H.R. 3179 , the Marketplace Equity Act, legislation that would fix this current competitive imbalance and ensure a viable marketplace for all retailers.

Online-only retailers are currently, in many circumstances, effectively exempt from collecting sales tax and, as a result, enjoy a price advantage – as much as 10% in some states. This is not a level playing field. This situation presents a severe challenge for the retailers that we rely upon to stay in business and create jobs. Every day that goes by without an equitable solution for online sales tax is another nail in the coffin for our local bricks-and-mortar retailers. Make no mistake – these retailers are profoundly linked to the economic vitality of our communities. It’s time for our leaders in Washington, DC to take action on policies that support 21st century retail, and it is critical that Congress quickly move forward with the Marketplace legislation (S. 1832 / H.R. 3179).

This website is designed to give you the tools you need to push your elected official to fix this problem. There is valuable information about the negative impact of the current sales tax system, resources to help you understand why this issue is so important to a healthy retail marketplace and useful economic data about how states are affected by this uncollected revenue.

The retail marketplace is changing, and the only way for local business to evolve and thrive is to fix our outdated sales tax system. We cannot afford—our communities cannot afford—to stand by as more and more brick-and-mortar businesses fall victim to the online sales tax loophole. Now is the time for Congress to address this problem and level the playing field for all retailers.

David Simon, Chairman and CEO, Simon Property Group

I am a realist and understand that the retail world is changing and all our bricks & mortar retailers must adapt to the paradigm shift or perish.  The new buzz word in retail these days is “experience.”  If you want to compete with on-line retailers then you need to provide an experience that your customers cannot get online.  In general it seems that retailers have forgotten that shopper’s expectations have changed.  They have instant access to information from their smart phone and have researched the product before they ever enter the store.  To understand this experience concept, you need to look no farther than your closest Apple store.  Many retailers from Staples to AT&T are changing the way they do business based on this new paradigm!  Out of the top ten internet retailers today six of the retailers are bricks & mortar outlets first and foremost.

So how does a traditional retailer compete in today’s mobile marketplace?

  1. 1.    Leverage the physical product.  Customers still like to see and touch what they are buying.
  2. 2.    Provide outstanding customer service. Service, Service & Service!
  3. 3.    Know your customer and what they buy.  Use the data!
  4. 4.    Invest in manpower.
  5. 5.    Invest in technology.   Have both a web store front and physical storefront
  6. 6.    Use the cross channel integration to push higher conversion rates.
  7. 7.    Streamline the check out process. 
  8. 8.    Cultivate customer loyalty to retain your customers. 

One of my other favorite hobbies is bike riding.  I purchased my first road bike from a store in the Memphis area called RB’s Cyclery.  I went into this store to check out a particular brand of road bike that I saw online to get an idea of what it was like and to touch and feel it before I purchased online to save money.  The owner was keenly aware that I researched this purchase before I came in.  He immediately asked what price I saw on the internet and said he would match it.  He then did through custom fitting for free, which I later learned, was critical and directly related to physical soreness.  I was hooked and have bought thousands of dollars of accessories from him, because of this first in store experience.  He always calls me by name when I walk in and knows what is important to me.  I unfortunately purchased a mountain bike this past year from another store in our market as they were the exclusive carrier of this brand that I really wanted.  This was the second major purchase I made from this store in the past six months.  I walked in 30 days after the second purchase and went to the sales person I bought both bikes from and she did not remember me.  Both bikes were expensive enough and worthy of remembering the buyer.  I love the bike, but this particular store experience left me less than excited.  As Apple Chief Ron Johnson was quoted “Retail isn’t broken the stores are.”    It is a time for traditional retailers to be innovative!

At all levels merchant advocates are fighting to support the Main Street Fairness Act to create a level playing field for the retail marketplace.  Cities and states are facing budget deficits each year and facing hard budget cuts that could be avoided if this tax is collected.  We are not advocating a new tax.  This tax is already due, but currently it is the responsibility of the buyer to pay which is not happening.  Technology will allow online retailers to simply collect the tax when a purchase is made and forward it to the state in which the buyer lives. 

I do not think online retailing will go away.  In 2011 it accounted for 11% of all retail purchases made and is growing at 15% annually while bricks & mortar retail is growing at 2.8%.  It is up to the traditional retailers to provide a level of experience that can compete with on-line retailing.  The support of this law change will take away a disadvantage that currently exists which has nothing to do with the product or level of service, but from a loophole in the current tax system.

I hope you will check out future weekly commentary at

www.RetailRocksintheMidsouth.com.   If you enjoy the commentary please subscribe on-line.

Cheers,

Shawn

Shawn Massey, CCIM, SCLS is a partner with The Shopping Center Group a 3rd party retail real estate advisory firm in their Memphis office, an adjunct professor in the graduate real estate program at The University of Memphis and a co-founder and Chairman of the Board for the Memphis Business Academy charter schools (K-12grade) in the Frayser area of Memphis.  

For all your retail real estate needs (tenant representation, landlord representation and property, investment & land sales) I hope that you will choose The Shopping Center Group and me to represent you and your business.  We understand that representation is a privilege and that you have a choice!

468 ad

7 comments

  1. You know, I have to tell you, I really enjoy this blog and the insight from everyone who participates. I find it to be refreshing and very informative. I wish there were more blogs like it. Anyway, I felt it was about time I posted, I

  2. This is more of an issue with small, indie on-line retailers, no? Seems that the Amazon’s of the world are already collecting tax. What percentage of the market is the indie retailer?

    • Eric:

      Actually Amazon is not collecting this tax. In Tennessee, they will not be collecting any sales tax till 2014. I think they are warming up to the fact that it coming and will embrace it, but it has been a fight.

      Shawn

  3. Peggy Drachman /

    My profession is Retail/leasing and sales of Shopping Centers/ Commercial Real Estate. This article was an eye-opener. Why all the vacant centers? Online buying/sales tax. I am in complete agreement-“Fix our outdated sales tax system”! Shop in store.
    Thank you.

    Peggy Drachman
    Associate Broker
    Oxford Realty Advisors
    6340 N. Campbell Ave.,Suite 200
    Tucson, Az 85718
    520-232-0200 ext. 121

  4. I don’t think Amazon needs the competitive advantage of not charging Tennessee sale tax. They have so many other advantages. Even the playing field and let them compete with small retailers just like everyone else.

  5. Lowell Peabody /

    retailing is changing. look for downsized stores and brands with increasing web presence. This is not a B&M Vs on-line issue as much as it is a the convenience of on-line shopping. Major retailers get it and are adjusting. Sales tax for on-line purchases should be charged yet that makes no difference to the buyer.

Leave a Reply

Your email address will not be published. Required fields are marked *


Warning: Invalid argument supplied for foreach() in /home1/retail/public_html/wp-content/plugins/cute-profiles/processors/cute_1.php on line 25