Big Box Stores going after Mom and Pop Stores again, this time on the Internet

Posted by PITHOCRATES - May 12th, 2013

Week in Review

The big box stores put Mom & Pop stores out of business everywhere.  Mom and Pop cried foul.  But the big box stores told them to cry them a river.  This is business.  If you want to play with the big boys then you have to figure out how to stay in business selling at the big boys’ prices.  Which Mom and Pop never could do.  Not with the big box stores’ purchasing power.  And their big box stores and warehouses that can house massive inventories.  When Mom and Pop could only buy a handful of stuff at a time.  Quantities so small they got the worse pricing from their suppliers.  Who could care less if they stopped buying from them.  Because it was the big box stores that kept the suppliers in business.

So the big box stores had a mighty advantage over Mom and Pop.  Some would even say it was unfair.  Even causing people to protest the opening of another big box store in their neighborhoods.  To protect the Mom and Pop stores.  For the people knew the moment a better deal was available they’d leave Mom and Pop and flock to the big box stores.  Where they could get real value for their hard-earned money.  And now the shoe is on the other foot.  And Mom and Pop have found a way to beat the big box stores.  Who are now crying foul (see You’re probably a tax cheat! Even if online stores don’t charge it, you’re supposed to pay it and new law will try to force you by AP Reporter posted 5/5/2013 on the Daily Mail).

Few taxpayers know they’re expected to pay sales tax on online purchases, so a new law likely to pass in Congress Monday will help states force retailers to pay up, thus forcing the retailer to charge its customers tax…

Supporters say the bill is about fairness for local businesses that already collect sales taxes, and lost revenue for states…

Supporters say the bill makes it relatively easy for Internet retailers to comply. States must provide free computer software to help retailers calculate sales taxes, based on where shoppers live. States also must establish a single entity to receive Internet sales tax revenue, so retailers don’t have to send them to individual counties or cities…

‘Complying and living under the tax laws of 50 states is a major undertaking because the process of complying with tax law goes far beyond just filling out the right forms,’ said Brian Bieron, eBay’s senior director of global public policy. ‘You have to deal with the fact that all of these government agencies can audit you and can question you and can actually take you into court and sue you if they think you are doing something wrong.’

Not charging sales tax does not give Mom and Pop an advantage over the big box stores.  It’s not having a brick and mortar store that gives them the advantage.  And not much of a one at that.  For unlike the big box stores everything Mom and Pop sell over the Internet includes something the big box stores don’t.  Postage and handling.  Which can be greater than the sales tax the big box stores adds to their sales.

As far as lost tax revenue for the states?  It is not as bad as they claim.  For instead of sales tax cities and states are generating fuel taxes on the fuel the delivery trucks consume.  They’re generating payroll and income taxes from the delivery truck drivers, the package sorters, the mechanics keeping the trucks on the road, etc.  In addition to the taxes these workers pay they spend what they keep.  Spending it in the local economy.  Where they even take their wages into those big box stores.  Purchase something.  And pay sales tax.

This is real economic activity that Internet sales drive.  Which DOES create a lot of tax revenue in these states.  So this isn’t as much about an unfair tax advantage Internet retailers are getting away with.  It’s about the big box stores who just don’t like the shoe being on the other foot.  So they hope to destroy that competition by putting Mom and Pop under an additional 49 (or more when adding in cities and counties that charge sales tax) tax jurisdictions.  Which will just suck the life out of dear Mom and Pop.  Again.

And it’s a chance for government to suck more wealth out of the private sector to pay for their bloated public sector.  Who are drowning under the weight of their costly public sector union contracts that they will grab any tax they can.  Leaving the taxpayers with less money in their pockets.  Which is why they turned to the Internet in the first place.  To get as much value as they can from their rapidly shrinking paychecks.

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The Creative Destruction of the Internet may put Best Buy Stores out of Business

Posted by PITHOCRATES - August 11th, 2012

Week in Review

Best Buy and Circuit City were once fierce competitors in retail electronics.  Big box stores that carried an amazing range of consumer goods from televisions to car stereos to cameras to computers to refrigerators.  Their marketing plan?  Trade volume for margin.  They sold at low prices with low profit margins that mom and pop stores could not match and remain profitable.  But because of their high volume Best Buy and Circuit City could make a profit with those small margins.  Which they padded with those extended warranties.  It was a successful business model.  For awhile.  Circuit City is no longer with us.  And now Best Buy is struggling (see Best Buy founder proposes taking retailer private by Dhanya Skariachan and Nadia Damouni posted 8/6/2012 on Reuters).

Best Buy Co Inc (BBY.N) founder Richard Schulze on Monday made a bid to take the struggling U.S. electronics retailer private just months after being forced out as chairman.

If Schulze succeeds, it could result in the world’s biggest leveraged buyout of the year. But early reaction suggests he faces an uphill battle in taking his once wildly successful company in a new direction…

Best Buy has been closing stores, cutting jobs and trying out a new store format to improve business. It has faced criticism for being too slow to react to a changing retail world, where many use Best Buy as a “showroom” to try out gadgets and then buy them online or elsewhere for less.

It takes money to maintain inventory.  And every Best Buy store has inventory.  It’s a huge cost.  But it also gives them purchasing power.  This is why the mom and pop stores went bye-bye.  With their low sales volume they had small purchasing power.  So the little they bought came at higher unit costs than Best Buy’s.  Which meant they had to charge higher prices to cover those costs.  And now it’s happening again.  Only it’s online sales that are squeezing the profits out of Best Buy.  From suppliers that have no retail stores.  And a more consolidated inventory.  With no sales force or cashiers to pay.  They have high sales volume and low operating costs.  So now Best Buy is getting a taste of what it was like for the mom and pop stores.

We call this creative destruction.  And it’s a good thing in capitalism.  Everyone agrees.  Having a cell phone is better than having a pager that displays a phone number to call.  Then finding a public telephone to make that call from.  Cell phones have hurt the pager industry.  Just as digital cameras have hurt the instant camera industry.  Just like the MP3 player has hurt the compact disc industry.  Which hurt the cassette tape business.  Which hurt the 8-track tape business.  And now the Internet is hurting the big box retail industry.  We call this progress.  And it’s what the people want.  Because it’s the people driving this change.  They’re the ones buying the cell phones, digital cameras, MP3 players, compact discs and cassette tapes.  And it’s the people who are now shopping online.

New technology is always replacing old technology.  When it does it destroys a lot of jobs.  But it also creates a lot of new jobs.  Yes, it’s sad to see some of our favorite businesses go out of business.  But they only go out of business because there is something better out there attracting our business away from those old businesses.  And the day we stop wanting this is the day we give up our smartphones.  Or whatever will have replaced our smartphones in the future.

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