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The Trials and Tribulations of Online vs. Brick and Mortar

Posted on Tue, Nov 30, 2010
 
unhappy customerLet me share a story that is a hundred percent truthful. However, to protect certain people and avoid any types of lawsuits, I will withhold the names of the players and companies involved. Let’s just say my friend, Bob, went into a store to purchase a high-end piece of designer furniture. The price of this piece was $4,500, but was told by the store, which had a gallery for this particular line, that this designer’s furniture was increasing in value. Bob bought the piece and expected delivery three days later.

That night Bob went online to check and see if the prices have increased in value over time. He didn’t see any significant increase but he did discover the homepage/website of the actual designer. On the designer’s website you could purchase directly from the site. There was no shipping, delivery charge, or any sales tax if you bought it online. The difference in price was over $750 less if you purchased it online. However, Bob loved doing business with this store and fell in love with his salesperson.

He called the company to verify all the prices and shared with the person in customer service what had taken place. Their suggestion was to cancel the order and buy it from them with such a significant saving. Bob, who is a retired retail executive, didn’t feel comfortable doing that and felt a loyalty to the store and to his salesperson who he loved (Bob is a sucker for a pretty face).

So he went back to the store and explained what he had done and said to the salesperson, “I don’t want you to lose this big sale, so I am giving you the opportunity to match the price.” He felt as if it was better for the store to make something on it than nothing. Well, here is where the first learning point comes in. The store was annoyed that Bob took this action and then offered that they would match the price but he had to pay the sales tax. At this point, Bob said “No thanks, cancel the order.” Then finally they begrudgedly agreed, but made Bob feel less than comfortable in his love affair with the salesperson, which came to an abrupt ending.

Instead of Bob being a hero with the store, he was treated as the customer from hell and has no intentions of ever returning there. In the future he will buy online. However, matters got even worse. Bob was traveling and happened to be shopping at an upscale mall that also carried the same designer line. The only difference was this store was having a special “meet the designer cocktail party.” Because Bob loved this designer’s lines he had all intentions of meeting this designer. He met the designer at the cocktail party, had his picture taken with him, and shared the story. The designer said that they didn’t discount any of their pieces online because it wouldn’t be fair to the stores. Bob who didn’t want to disagree, respectfully disagreed and this designer’s assistant, who was by his side, tried to let the designer know that they did discount by 10%.

This designer had no idea what was happening on his own website in his own business. He made a statement that he would rather lose the sale than to hurt his stores, which was the right thing to do. The only problem is he never bothered to share that with the people who are running his company. Do you know if your employees are representing your policies the way you want them executed?

There is a much larger issue that must be addressed, and that is the fact that the independent retailer is not playing on a level playing field. For example, you can purchase an item online from Amazon and pay no sales tax but go into a store which is selling it at the exact same price but has to add another 6%. At other places it is as high as 8 or 9%. If Congress needs to raise money, I wonder how much 6% of Amazon’s total sales would add up to. It might not get us out of the deficit, but it would be a good start. This condition must come to an end, otherwise we are just handing business over to online merchants.

I am writing this article on Cyber Monday and have been amazed at some of the deals that are available today online. We can NO LONGER even think about even trying to compete on price. We are specialty stores. Let’s make our stores special.

Lastly, THANK YOU American Express for making the Saturday after Thanksgiving Small Store Day. As they say it’s going to be big. Let’s all get behind it for future years.

Comments

Rick, 
 
Respectfully, the "lack of sales tax" that happens with an online purchase will ONLY happen with an out-of-sttate purchase.... AND, if you purchase goods out-of-state, LEGALLY you are supposed to pay use tax to your state for those items. The only items that you don't have to pay use tax on are items that are tax exempt in your state - like photocopies, for example. The fact that people use this tactic to get our of paying sales tax is totally taken for granted, because it is up to the CUSTOMER to be honest and pay the sales tax. Furthermore, would Bob have purchased his piece of furniture, sight unseen, online only without laying eyeballs on it? I doubt it. We independent retailers are ending up, sometimes, as more of a showroom than a store.
Posted @ Tuesday, November 30, 2010 1:30 AM by Jan
I have to agree with the comment that the user legally is reponsible for the sales tax in the state of useage. 
 
Having said that, the reality is, unless collected by the merchant the tax does not get collected. A flat tax on internet purchases would at least buy OBama a cup of coffee. 
 
I am a high end retailer and still love the business. The price pressure from the internet has certainly changed retailing. 
 
I don't pretend to have the answers, that's why I keep coming back to hear what Rick has to say about what is happening around the USA.
Posted @ Tuesday, November 30, 2010 4:38 AM by Kitty Sipe
I agree the internet certainly changed how we in brick and mortar do business. My business sells "one of a kind" products made in house so our chance of someone purchasing them on line would only happen in our website. Unless the customer is not willing or able to purchase them and then they naturally go elsewhere to purchase a similar but lesser item. 
 
Be it as it is the sales tax must be collected and paid to the appropriate states where the product arrives by either the customer or by the sales point. I for one would not want to take the chance of upsetting the sales tax division in my state. For a measly 8% of the sale it is not worth a full blown tax audit. 
 
The moral of the story is "Thou Shall not steal"
Posted @ Tuesday, November 30, 2010 5:18 AM by Cindy Welch
I think most of the commenters are missing the point here. Sales tax issues aside, why would any retailer carry a line that is undercut by the manufacturer, no less. It's one thing to have competition, but when your competition is your supplier, that is outrageous. No one can compete with that. As for your friend, did he not see the value in working with a store that had the product on hand so he could touch it, see it, feel it? They brought that product in "on spec," financed the inventory, and warehoused any back stock so it would be there when he walked in the store. I work for a wholesale/distributor and we are getting squeezed from both ends-- manufacturers and retailers who forget Marketing 101 and the role of distributers in the whole marketing chain.
Posted @ Tuesday, November 30, 2010 8:28 AM by Leslie Ross
Rick, I enjoy your weekly mail. Thanks for taking a stand for the small business. Our jewelry store is a three family member staff. To the point: the internet has just about killed our diamond business. The only way to beat those guys is with great customer service and TLC for our customers. Hope we all have a good Christmas season and thanks again.
Posted @ Tuesday, November 30, 2010 8:54 AM by Freddie Barnes
As an internet retailer and I am constantly asked by my customers if we have a store where they can come and see our products in person before they buy, and I often lose sales to competitors who have a showroom or will meet with customers to let them see the same products in person so I don't think online always wins out over brick and mortar. As far as competing with the manufacturer goes we never deal with wholesalers who also retail their own products, we just can't compete. As a shopper I am always willing to pay somewhat more for good customer service but sadly it's very difficult to find (at least in Canada where we are) the customer service is so poor at larger big box stores why not shop online? Smaller specialty stores sometimes offer good service but many times they don't either.
Posted @ Tuesday, November 30, 2010 9:18 AM by Laura Stevens
Rick,  
 
I agree to Jan's point that we are becoming show rooms. We have customers come in all the time to see something before they buy it on the internet. Often the price on the internet is less than we can pay wholesale. I frequently check internet pricing to keep our store competitive. Could you address another issue with internet and catalog competition? Selection seems to be hurting us as well. A customer will see 10 models or colors of a particular item online and then expect the brick and mortar to have the same selection. Thanks for passing on your stories. 
 
Diane
Posted @ Tuesday, November 30, 2010 9:20 AM by Diane Kendall
I feel margin opprotunities will never be the same for brick and mortar dealers if things do no change, even with the best customer service. We sell commodity items with specific model #s and we are being pinched to a point of extinction. We need help from the government to issue a standardized internet sales tax and we also need help from our suppliers to help with alternate solutions. Some of ours make it mandatory to not list pricing on sites or limit shipping to a radius of 100 miles from your location.Both have helped significantly but it is not possible with all brands. We have only two mores years to reach an outstanding 100th year in business with the same family so I hope these institutions realize the dire need for assitance before it becomes to late. If they want to help small business employment and not see a commercial real estate meltdown they should task this now. It would also bennifit them with substantial increase of tax revenue.
Posted @ Tuesday, November 30, 2010 10:28 AM by Dan Novak
Hi Rick, This issue is a very big one for me. I know that customers are very price conscious and although I offer awesome customer service in my boutique many will leave and go online to get "free shipping" and no sales tax. (mind you I do have very fair pricing) Lots of the companies/vendors I deal with are from out of state so the "no sales tax" would apply if customers dealt with them directly. Lets face it if they go to the extent of sidestepping me do you really think they will be honest and send the sales tax to their state? What I have tried to do to combat this is not to deal with vendors that sell directly to consumers. They are strictly in the wholesale business. If they do have a website and sell there as long as they charge significantly more than I do I will accept that. I have dropped lines because of this "double dipping" but not before I explained to them why. Not one of the wholesalers cared about losing me due to this. Should I showcase their items and operate long store hours so they make the direct retail sale? No thanks. I do carry many unusual artisan items. I am 90% jewelry and passionate about what I do and I think it shows to the customer but price is king to some & our brick and mortar stores have overhead.
Posted @ Tuesday, November 30, 2010 10:48 AM by Robyn Kopin
American Express recognizes (finally!) that the aggregate small business is HUGE business, and they have a vested interest in that HUGE business staying vital and growing. I loved their publicity on the Today Show and the internet hype. Awesomely nice to have attention drawn to us. I think Small Business Saturday should be a 52 week per year initiative. Why not? 
 
 
 
I will take education like this on my behalf wherever and whenever I can get it! 
 
 
 
Now...where are VISA, Mastercard and Discover? Is the viability and vibrancy of "Small Business" not so important to them?
Posted @ Tuesday, November 30, 2010 10:54 AM by Peter Rose
I own a Brick and Mortar Bridal store in an Ocean side community. I am sick and tired of losing sales to Internet on-line stores that "undercut" our prices deliberately. 
There is no way controlling this. I have spoken directly with the companies I deal with and ALL companies has a suggested Retail Cost they want all their Vendors to abide by, but the Internet stores do not do this. We have payroll, overhead costs, and RENT which we have to pay to keep our doors open. Internet stores just have to place an opening order and babboom..they can sell everything from their office in the spare bedroom! There should be a law to stop this type of price gauging. Brick and mortar stores work a lot harder and know their merchandise..at least I do!!
Posted @ Tuesday, November 30, 2010 10:59 AM by Anna Martin
And another thing.....the retailer may have blown it with that customer, but it's not hard to be empathetic with a store that has to be the one facing this sort of Kafka-esque new reality. If I owed that brand money, I'd withhold it. I'd negotiate the return of the entire line. The customer shouldn't bear the brunt of the retaliation, of course, but boy, would that undercutting stunt become public and fast. I'd share that with everyone in my network, on Facebook, etc. That's a horrible story, NO WINNERS. That vendor needs to have it's retail distribution eliminated, and fast enough to cause them real grief.
Posted @ Tuesday, November 30, 2010 11:04 AM by Peter Rose
We are a fairly large furniture business and run into customers who want us to meet internet prices. When checking out some of these web sites and verifying their prices, shipping costs, etc.  
 
we have then contacted our vendors to find out how they can sell merchandise at these very low prices. We were surprised to find that the vendor was not selling to them, possibly bogus web-sites. One of the vendors in taking legal action against one of the web sites. Buyer beware.
Posted @ Tuesday, November 30, 2010 1:49 PM by Barbara
We are in the juvenile furniture business and are constantly being used for information on products. The calls on the phone are "do you have the item so that we can look atit?" The family business of 60 years has become extremely frustrating We do offer great customer service;however, most of the time price is the issue. The consumers don't want to pay sales tax or carry merchandise out of the store. Going on line is easier and cheaper. I agree with Rick about having a flat internet tax. There is legislation that has been passed called Streamline Taxing. I believe there are about 23 states that reciprocate . It's a lot of paper work and not all the states want to pass the legislation. In New York I understand that 60 billion dollars worth of sales tax is lost by the state every year. I think that store owners should be calling their representatives and senators and complaining about all of these issues.When is everyone going to wake up and smell the coffee!
Posted @ Tuesday, November 30, 2010 3:30 PM by lorraine
When I opened my account with a "major bridal company" I was told I COULD NOT SELL on my website or EBAY or any auction site or my account would be shut down. This is fraud...if you go on the Internet..you will find several websites and auction sites who sell these major brands at Wholesale cost. Whether their account was shut down and they are stuck with inventory they need to sell..if a VENDOR blackballs one of their stores takes their money they deserve to have the merchandise slapped back at their doorstep..this is unethical and bad business. You do not want to work with Vendors who operate like this. Slap on the Internet tax...the same rate as Brick and Mortar and you will see buying on the Internet will slow down. Also, women like to buy on the Internet because they often buy a dress or whatever to wear to an event..they stick the tags in and return it to the stores a few days later..and get their money back. You can't do that with small independent stores who hold a strict return policy.
Posted @ Tuesday, November 30, 2010 3:46 PM by anna martin
Internet selling has changed the way that retailers have to do business. It used to be that business across the country could price the products according to the demands of their local market, but with the internet and big box stores publicizing prices, now everyone has to sell products for the same price, whether they live in Los Angeles or Idaho. 
My guess is that small retailers will figure out that the real way to make money is not through selling products, but rather through selling experiences. Hosting talks or presentations at your store, offering design services or consults, etc (and having customers pay for these experiences) will be the way to keep your store afloat.
Posted @ Tuesday, November 30, 2010 6:38 PM by Teresa Gonczy
I'm a manufacture that sells to our dealers and online. We don't undercut our dealers. But we cannot cover the earth with our products as we can online.  
Plus the imports have moved in and can eat us alive (pricewise) in our dealer stores. 
It used to be that our products were hands down better than the imports. Now Americans are running the manufacturing plants overseas and their products are getting better. 
As far as sales tax goes. I can't blame anyone for getting around it because look what the states do with your hard earned money. 
If I was president, the first thing I would do would be to shut down NAFTA.  
If I told my dealers they could not sell imports. They would laugh. 
 
30 years of manufacturing tells me that I should never turn down an opportunity to make a prophet. 
 
So, tell me what I should do. I have between 50 and 80 employees that need to eat too.
Posted @ Wednesday, December 01, 2010 12:52 PM by Gene
We are all caught between a "rock and a hard place" on this subject. NAFTA was supposed to create more jobs in the US, not send them overseas to China and India and close our factories and put Millions of people out of work like it has..it's a proven fact which will get worse if something isn't done about it, which I don't think it will ever happen. Companies have gotten greedy over cheap labor and profits they are making. In away the manufacturers bought factories in these Countries and fell for the bait to stay competitive in the market place. I don't see quality in these item, but it's slowly getting better, but not much. Being in women's Bridal, the companies expect us to stay within their suggested pricing, but you can't do that if your shop is in a Prime location with very high rents. You don't want to put everything on your website for a reason. I have to say I have had to find more creative ways to attract customers and keep them..Customer Service is the key..you don't get this over the Internet.
Posted @ Wednesday, December 01, 2010 3:40 PM by anna martin
I am finding this discussion to be very interesting. In light of the fact that we ARE an on-line business that chose to open a brick-n-mortar shop gives me a different perspective. 
 
Yes, it seems easier to sell on-line: no overhead, no employees etc. etc. But that is not reality! It takes significant amount of work and marketing to make a website profitable. And if you reach this point, you often need a warehouse (depending on the merchandise you sell) to inventory and set up a fulfillment center. 
 
Now, we chose to open a brick and mortar shop in our home town because, although we have had an active website for over 6 years, most of the locals in our town did not know it existed!! There was a real need in our town for the type of products we sell (regional gourmet foods and gifts), so we opened the store. 
 
The website now feeds the store and the store feeds the website. Win-win for us and our customers. I know our tactics may not work for everyone (and frankly, we don't know if it will work long term for us either!) 
 
Despite the cost, I would HIGHLY recommend that a retail outlet ALSO have a website. And each website should try to match the manufacturer's pricing. If not, there are other ways to increase customer value like exceptional customer service, specialize marketing, etc. to draw customers to your site or store rather than the manufacture. 
 
Personally, I find that retail shops (I am also a sales rep) are way behind the curve when it comes to technology and the web. In this day and age, if you want to play on the same playing field, be proactive rather than complaining about the competition. 
 
Anyway, just my two cents worth! 
Posted @ Friday, December 03, 2010 6:44 PM by Sandy Dell
Wow, I couldn't agree more with Rick that websites should have to collect sales tax (and yes, I have a website). We hear constant complaints about budget shortfalls, and here is a great way to collect legitimate funds, b/c I know 95% of folks do NOT pay taxes for the purchases they make on-line. And 10 years ago, I had very few vendors that sold directly from their own site; now they almost all do and often undercut me. What are you going to do- that leaves you to produce your own goods and that is it- and good customer service. But as many pointed out, like Rick's friend, people do not value brick and mortars enough to pay the difference. Heck, they have the gall, to come in, try on shoes to "get the right fit" and then buy them on-line!! And some will say, go ahead and match prices--at first we did, but then folks would find such deep discounts, that we would soon get in a bad rut if we did b/c unlike them, we do have overhead of a showroom, etc. Like one person mentioned, I keep reading Rick's ideas in hopes of an epiphany! In the meantime, I think we should all write our Congresspeople, and ask them to have taxes on web sales---and again, we have a ecommerce site ourselves, but at least the playing field gets leveled, and much needed/lost dollars go to the government which I'd rather have then have increased taxes elsewhere too!
Posted @ Sunday, December 05, 2010 6:57 AM by Tina Miller
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