The Marketplace Fairness Act of 2013, which would require eCommerce retailers to collect sales taxes for online purchases in states where they do not operate, has been getting a lot of press, since its recent passing in the Senate. The debate continues as it moves to Congress with a major disconnect between those that support it, such as Amazon and major brick and mortar retailers and those that would like to amend it such as Ebay.
According to research from the University of Tennessee, states have missed out on more than $11 billion in uncollected taxes in 2012 from online purchases. Currently, the burden is on the online consumer to pay sales tax to their home state, but most never follow through when they file their annual taxes causing states to lose out on that income.
According to eCommerce growth estimates from companies such as Forrester Research, this is a number that could grow as much as 13% in 2013 alone. Large brick and mortar retailers feel that online only retailers are gaining an advantage by not having to charge taxes and would like to “level the playing field” so that all retailers are on equal footing when it comes to taxation.
But what does it mean for all the growing eCommerce retailers that could potentially be affected by having to collect sales tax from their consumers?
The impact to web only retailers – that sell more that $1M a year in online revenue – will be the greatest which is why companies like eBay are trying to have the threshold raised to $10M a year in online revenue or more than 50 employees so they are "protected from new burdens that harm their ability to compete and grow," said Brian Bieron, Ebay's senior director of global public policy.
Ecommerce retailers that are selling $1M are typically in growth mode and feel that it will be burdensome to collect taxes for multiple states, even with state-provided software called for in the bill. The administrative and regulatory burden to pay taxes in all sales tax states will be high and may require them to hire additional employees to deal with these changes and to ensure compliance. This will require changes to their business strategy and can potentially stifle creativity and entrepreneurial spirit.
Webgistix CEO, Joe DiSorbo, who works with hundreds of eCommerce retailers who would be impacted by this bill, believes that this will hurt small businesses and that the winners and losers are clear.
“Amazon, along with local retailers, have a vested interest in forcing every online retailers to pay the sales tax because they have an economies of scale advantage over the small retailer and they know over time this will ultimately force the small online retailer out of business."
"The small tax advantage that eCommerce only retailers have over local and large online retailers does not make up for their lack of economies of scale. Not having to collect and pay the sales tax gives small companies the ability to be creative and entrepreneurial. It allows them to test new business models and new ideas. This ability to experiment cannot be understated.”
What do you think? Please feel free to share your thoughts with us.
Webgistix will be closely watching this issue as well as standing up for the eCommerce retailers.
We also suggest using resources from companies like Avalara (sales tax & compliance technology) who are closely following the debate and will continue to update information on the Marketplace Fairness Act and what it may mean for you. http://salestaxchanges.com/
When it comes to ecommerce retail, a competitor’s site is a just mouse-click away so increasing customer satisfaction is more important than ever. According to recent research from Forsee, highly satisfied customers are much more likely to be brand loyal, make repeat purchases and recommend those retailers.
Given that Forrester Research predicts ecommerce spending could reach $370 billion in the US by 2017, and is continuing to outpace store sales, it is imperative for retailers to understand the consumer mindset and what drives online shopping behavior if they are to remain competitive.
Do you know how your online store can not only compete, but thrive, in the face of increased competition?
Join, Jessica OBrien, partnership marketing director and former Gartner industry analyst, for the Webgistix Customer Satisfaction Webinar to learn why consumers abandon shopping carts, how to turn order fulfillment into a competitive edge, techniques for increasing repeat business, customer satisfaction and profitability
Date: Wednesday, April 17, 2013
Time: 10am Pacific/ 1pm Eastern
If you are an ecommerce retailer, then you know that managing freight is a necessary and important cost of doing business, but it can be complicated and overwhelming to deal with all the requirements while maximizing your supply chain efficiency.
Additionally, import cargo volume at the nation’s major retail container ports continue to increase according to the National Retail Federation (NRF) despite federal spending cuts that could slow down cargo processing.
Retailers must also consider their sourcing strategy as nearshoring gains popularity with manufacturers and could alter supply chain flows dramatically as well as impact freight management strategies, according to CSCMP.
Retailers that are overwhelmed with the complexities of handling their own freight can look to outsourced providers in order to leverage the industry expertise, volume discounts and other benefits which include:
- Better carrier rates based on the providers’ volume
- Liability is transferred to the carrier/freight insurance provider (if insurance is purchased)
- Reduced risk of increased costs for improperly handled freight (i.e. due to improper product classification)
- Better tracking of goods to ensure quick arrival at destination
- Decreased costs by eliminating the need for an in-house freight manager
In you are looking to potentially outsource freight management; here are key tips to getting the most accurate quotes.
5 Easy ways to get more accurate freight quotes from providers
- Incorrect weights and dimensions will change the outcome of pricing. It is very important that every pallet is weighed properly using a pallet scale and two people measure the length, width and height of each loaded pallet. This will ensure accuracy and proper pricing of the shipment.
- Product description must also be accurate. Some products have very specific classes while others rely on measurements to determine the class. In either case, the product must be specifically described so that the appropriate class can be determined. The class of the merchandise is half of the determining factor of the price.
- Pickup/Delivery address (for domestic freight) must be specific. A more general zip code is ok for getting a quote, but it is the address of the origin that is most needed. It is also important to specify if the address is zoned as residential or commercial. It is important to state this zoning when obtaining a quote.
- Peripherals must be determined prior to obtaining a quote. These are the extras that carriers are able to provide. Will a lift gate be necessary for picking the load up off the ground to load it into the truck? Does the recipient need a phone call to schedule the delivery? Will the driver need to assist the receiver in moving the shipment from the truck into a building? Lift gate service, phone call prior to delivery and driver assistance are all extras that need to be stated when getting a quote.
- Divulge hazardous classification of product, should one exist. This is regardless of origin or destination. If the cargo is hazardous, customer must inform the provider and provide an MSDS and a Shipper’s Declaration of Dangerous Goods and an Emergency Contact with a phone number that can be reached 24-hours a day, and respond appropriately.
“Behind every great leader there was an even greater logistician.” - M. Cox
We all know that being closer to the customer is the place to be, especially according to ebay, Amazon, Google, Walmart and other retailers that are touting same day delivery as the next best thing since sliced bread.
A recent interview with a nutraceutical company reveals that leveraging strategic fulfillment locations led to dramatic savings, increased speed of delivery, and better customer service.
In industry speak, this can be referred to as logistics network optimization. It means getting as close to the customer as possible in order to leverage faster and cheaper shipping and optimized order sourcing.
It also means ensuring that customers are getting their product as fast as possible, but that you as a retailer are leveraging the delivery network and optimizing profitability.
However, this can be difficult to do for many retailers who have a lack of infrastructure to support it. A survey by Multichannel Merchant of 654 retailers in April 2012 found that 75% of online/multichannel retailers operate only one warehouse which makes it very difficult to optimize their network or increase speed of delivery.
One nutraceutical company decided to use the Webgistix SmartShip service – which runs network analysis using things like order history and product weight to determine optimal distribution networks leveraging Webgistix warehouses – and was able to determine that by placing inventory in three strategically placed warehouses instead of one, it would be extremely advantageous for his company.
How advantageous?
-This company was able reduce costs by approximately $2.72 per order or shipping costs
-This saved over $31,500 in a 3 month period
-In addition, customers received their products an average of one day faster, which increases customer satisfaction and loyalty
Pretty incredible stuff.
How can you too leverage logistics network optimization to improve customer service?
-Understand where your current customers are.
-Understand your product profile: depending on volume/ SKU counts etc., it may be prohibitive to split inventory across multiple locations.
- For example, in apparel this can be difficult if you have multiple styles, colors, sizes and unpredictable demand.
-Understand the demand of your customers: in many cases you are using order history to see where your volume is coming from, but future demand can change dramatically. There are sophisticated demand forecasting and sensing tools that can help.
- For example: New product introductions, increasing your geographical reach, etc. will influence future demand
-Know that this is not a one-time exercise – understand when to re-evaluate: Edward Frazelle, founding director of Georgia Institute of Technology’s The Logistics Institute has stated that companies used to evaluate their networks once every 5 or 10 years, but “that’s no longer the case as the issues affecting the network configuration are changing so fast that they have to be monitored much more frequently.”
- For example: A retailer that is adding a product line that is heavier (hard copy vs. soft copy books) and will affect shipping costs
-Work with people that know how to do this analysis. In house resources, outsourced resources, consultative services and network design technology offerings are all options.
The payoff: Optimal network design can minimize inventory carrying, warehousing, and transportation costs while satisfying customer response-time requirements and lead to increase customer loyalty.
And an extra $31K isn’t bad either.