The sales tax, something that has been with us in the United States since the 1930's, had until yesterday bypassed e-commerce retailing. On Thursday, June 21, 2018, the United States Supreme Court ruled that states are allowed, for the first time, to apply a sales tax on articles sold by e-commerce providers.
This is a highly significant case as the 5-4 ruling overturned a prior 1992 decision that made internet retailers immune to such a tax. The idea at that time was that digital commerce needed a boost in getting started. That was, of course, then and this is now. Since that time, those with access to the Internet has risen from 2% of the population to 89%. The Supreme Court felt it was time to even the playing field.
The big question for those of us who rely on both bricks and mortar as well as digital retail to do our business is this: Will it help bricks and mortar and will it hurt digital?
Interestingly, the stock market seems to think that it will hurt e-commerce but not particularly help bricks and mortar. That is my take away from yesterday's across the board decline on digital retail stocks.
As CNBC put it in a headline that really said it all, "Shares of Amazon and other online retailers slide after Supreme Court sales tax ruling": "Overstock fell 5.7 percent, Etsy and eBay slipped more than 2 percent and Shopify declined 1 percent. Amazon was down nearly 1 percent."
What was interesting was that there was no similar upthrust in the value of bricks and mortar stocks. Wal-Mart and Target made modest gains but failed to earn any headlines.
I think there are several reasons for this:
1. Millennials and those of Generation Z have grown up with digital retailing and buy online out of habit.
2. Consumers are starved for time and begrudge a trip to the store that may result in them returning home empty handed.
3. Many consumers enjoy the ability to search out exactly what they want from the comfort of their family room recliner.
4. A large number of consumers enjoy the ability to compare and contrast not just price but quality, color, style, size, etc. while sitting down.
5. Lowest price is still a driver but consumers will still expect to get the best price online.
E-commerce has been growing at exponential rates for the last twenty years. It will still grow as more digital native consumers increase as a percentage of purchasers. The bottom line effect will be that e-commerce growth will slow but certainly not stop.
Bricks and mortar retail will prosper based upon its ability to provide what the digital shopping experience cannot:
- A tactile experience with the product
- A highly knowledgable salesperson
- A clean, efficient and hopefully pleasant shopping environment
- An in-stock position on inventory.
Let us know what you think.