Amazon’s new app seemed to be a win-win for everyone. It gives a 5% discount up to $5 on the purchase of some of the most popular holiday season gifts, such as toys, music, DVDs and electronics. All the consumer has to do is visit any store where the merchandise is on sale, enter the barcode into their smartphone by image or text and then buy it from Amazon to receive the discount. What Amazon is proffering as a great deal for consumers is actually a bum deal for the brick and mortar retailers who have had a customer walk into their stores, pick up a product they want and then go buy it elsewhere. In the razor-thin profit margin world of big box retailers this is exactly the sort of “unfair competition” that can drive them to bankruptcy court.
Big Box Stores Compete with Ghost E-tailers
Big box stores such as Best Buy have long complained of their locations being used as hands-on demonstration centers by the online e-tailers. Customers regularly visit the store, check out comparable equipment, engage the sales person in a conversation about the products’ features and characteristics, then go home to order it from an e-tailer at a lower price. The big box stores are thus being placed in a bind as the much higher overhead of sustaining a brick and mortar series of retail outlets around the country obviate them from being able to match the e-tailer’s selling prices. After all, some e-tailers are essentially ghost or shell operations that are little more than order-taking centers for merchandise that gets drop-shipped. They don’t even have to have as much as a warehouse, just a website and a phone.
Skip the Sales Tax, Save 10%
The e-tailer advantage goes much further than low overhead. Most e-tailers, including Amazon, don’t collect state or local sales taxes. A customer in Birmingham, Alabama can skip the 10% sales tax altogether by ordering from an e-tailer that is conveniently located in Delaware, Montana, New Hampshire or Oregon where no sales taxes are levied. The only detriment to buying from an e-tailer is if a large or heavy product has to be shipped to the buyer at considerable cost, but even this is often circumvented by waiting until the e-tailer offers a limited time free shipping offer. Facing this extent of “uneven playing field” it is a wonder how the big box stores manage to stay in business at all, and many don’t: The retail landscape and malls across the country are scarred by the presence of empty locations where Circuit City, Computer City and other big box stores once thrived.
Amazon Crossed the Line
The Retail Industry Leaders Association (RILA) did not stand idly by but called Amazon to task for its blatant sales misappropriation. RILA’s members are especially galled by the ease at which a customer could actually complete the transaction right away but not through its own checkout counters, thus using “brick and mortar stores as showrooms to then purchase merchandise online from inside the store.” The reality is that anyone with a smartphone can do that anyway with any e-tailer. Just walk through any large electronics store on a busy weekend and you’ll see customers doing just that. However, RILA believes Amazon crossed the line by actually offering a special discount for the specific action and cried foul.
The jury is still out on whether such blatantly anti-competitive practices will be allowed to continue by a Congress that seems stunned by the enormity of the legislative challenges it faces and replies with chainsaws when surgical scalpels are required… if it responds at all.