Black Friday, Internet Retailing and the Tax Base

by James A. Bacon

As millions of Americans plot their insane Black Friday retail rush, trampling over one another to reach the best deals in Wal-Mart and Target, millions of other Americans are planning to sit at home and shop online. Who needs the risk of getting crushed like a fallen participant in the Pamplona running of the bulls? After a couple of clicks, you can have the object of your heart’s desired delivered by UPS to your home.

Music stores… gone. Video stores… gone. Book stores… fast disappearing. Any product that can be digitized is selling over the Internet. Even categories such as apparel once thought immune to Internet disruption are seeing innovative business models that dispense with the need for bricks and mortar. According to the latest numbers from the U.S. Census Bureau, total retail sales for the 3rd quarter of 2012 increased 4.6% over the same quarter in 2011. E-commerce sales increased four times faster — 17.3% — over the same period.

Source: U.S. Census Bureau. Click for more legible image.

E-commerce now accounts for 5% of all retail sales in the United States, and the trend line shows no sign of slowing. Some prognosticators say e-commerce market share could reach 25%. That spells bad news for traditional retailers who will have to find ways to reinvent themselves. But it spells equally bad news for state and local governments that have relied upon sales and property tax revenues to buttress their tax bases.

Rest assured, the retail industry will reinvent itself. Some retailers may fall by the wayside but others will spring up to take their place. If nothing else, retailers understand that they are facing disruptive change. That message has not yet penetrated local government.

The problem isn’t the loss of sales tax revenue. Conceptually, that’s easy to remedy — just tax online sales. There are complications with taxing e-commerce, to be sure, but eventually something will have to be worked out because state and local governments could not long survive without that revenue source. The tricky part will be replacing lost property tax revenue as retailers shed retail space.

An increasing share of retail product will move directly from warehouse/ distribution centers by delivery truck to people’s homes, bypassing stores entirely.  The result will be more lumpiness in the distribution of tax revenue. In the past, property tax revenue accrued to the localities where the stores were located. In the future, property tax revenue will accrue increasingly to localities where the Amazon.com and other e-tailer distribution centers are located. Localities seeking to expand their tax base would be well advised to target the logistical sector.

While bricks-and-mortar retail will never disappear, there may be a lot less of it, and it may take very different forms. Big box stores seem to be on the way out. Old-style malls are being torn down. Even shopping centers, dependent as they are upon automobile traffic, may find their markets increasingly limited as car ownership becomes more expensive and Americans shift to other transportation modes.

There is little sign that Virginia localities have begun to re-think their comprehensive plans to reflect emerging retail realities. No one can say with certainty how these trends will re-shape land use patterns, but one conclusion seems safe: land use patterns will change. Unless localities can find a crystal ball that foretells the future, their best bet is to become more flexible, allowing for innovative and unexpected land use combinations dreamed up by developers and retailers in search of the next big thing. Clinging to the status quo is a guarantee of failure.

13 Responses to Black Friday, Internet Retailing and the Tax Base

  1. here is a question. Is it cheaper to ship 20 toaster ovens on one delivery truck to one place and have people pick them up or is it cheaper to ship 20 toaster ovens on 20 different delivery trucks to 20 different addresses?

    which is cheaper?

    HINT: pick an item that is big or heavy or both…

    super dooper extra hint phrase: ” delivery options – ship to store – free shipping… ship to home – compute shipping costs”.

  2. Jim – you’re right, the consequences will be many and profound. And likely for the better.

    For example, destination shopping retail generates huge traffic and parking. It eats up great quantities of land with mega stores, vast parking lots outside and underground, heavy utility loads, and infrastructure. These uses are not society friendly. They’re more likely to die.

    Hopefully this will open up more friendly market styles. small retail uses, smaller stores, shops, eateries, and the like.

  3. the You Tube video that leads off this article certainly captures the essence of where our society is currently headed.

  4. Of course, “Black Friday” is hokey and contrived. I can remember hen there was no such thing, but marketers have taken over.

    But after we get over the tut-tutting, consider two things:

    (1) Many people are still strapped for cash in the sluggish recovery and could use bargains, although this special day may supply less than expected.

    (2) The economy can use a boost and if Black Friday does it, just fine. Things need to get unstuck into terms of cash moving through the economy — maybe help some of the huge corporations start moving some of the cash they have been hording.

    As for E-reatiling, just dandy, but it sounds sooo 1990s. It has its place but not everyone can wait around in their homes or apartments for FedEx. They have to work and shop when they can.

  5. shipping is cheaper the more things you can get on one truck – that consumers then have to come to a central but local site to pick up.

    what Amazon and other online retailers are doing is setting up delivery depots in various locations where people would go to pick up their purchases.

    that’s much cheaper than sending delivery trucks out to neighborhoods (even with algorithms).

    You may have noticed (or not) that Fed Ex may drop your package at the local post office for you to pick up rather than at your house.

    this is where things are going and it also gets rid of the parking lots, etc.

    the local post office or a local UPS/Fed Ex store will have lockers with digital keypads (and you’ll receive the one-time code) for the locker.

    but we still have a problem in that some things you need to see/feel physically before you become convinced that it’s the right item for you and that is going to keep the brick/mortar sites alive until we figure out how to provide you with a hands-on assessment before you buy.

    re: the “contrived” black Friday – yes… but if you are willing to act like an idiot for half a morning..you could save 200 bucks!

    :-)

  6. you’re thinking here partly correct, but otherwise simplistic.

    The essence internet deliver is expanding choice and maximizing efficiency. The beneficial results of both through tech and logistics are prodigious.

    We’ve mentioned some of those benefits above. Others include saving the consumer time, gas, and money. Perhaps the greatest is the time it creates out of thin air, freeing him or her to do other more productive tasks.

    The collection point idea for certain potential consumers also serves to expand choice and save time for those where home delivery does not work. So internet delivery with a twist becomes an option for them, as well.

    Jim’s articles raises is yet another example how logistics is changing our lives in profound ways, just as it saved our freedom in WWII. Then our mastery and innovation of Logistics saved civilization. Logistics may yet save civilization again. Go Richmond!

  7. some of my views on pretty simple-minded because of direct experience.

    we have ordered several larger items like a Sears Dishwasher and the options for delivery were free to the local store (where they would bring it out to install it – free) or we could have had it direct shipped to us but for $50 for what they call “tailgate service” or for more than that for actual delivery from the truck in the driveway to the house – for more.. can’t remember the exact.

    did this also with a large screen TV and several other items that Walmart had online and would ship free to the store to be picked up or for extra shipping charges to deliver to your home.

    My suspect is that several times a week a tractor trailer delivers to Walmart and putting other stuff on the truck (if room) costs them little extra in fuel… because the truck is already heading to the store anyhow.

    The same would be true for Sears, Best Buy, etc.. where they have regular deliveries scheduled and room to carry other stuff ordered online.

    Amazon is saying.. why pay shipping for a hundred separate items to a 100 different town addresses rather than have one truck take all of them to a central depot and have people come pick them up (or pay to ship from that location to their home).

    logistics IS fascinating and I’m thinking the quest is to reduce shipping costs… while maintaining sales and let the customer choose the option that suits them best – free shipping to a central location for pick up or pay extra for direct-to-house.

  8. Thanks for adding in that detail.

    More choice is the essence of success. It multiplies advantages in untold ways. And, in addition to your experience, I strongly suspect that the sellers want to expand into markets where home delivery is difficult.

    And that UPS and FexEX also want to do the same for obvious reasons plus fact that the E-book revolution is cutting into their book delivery business.

  9. not only more choices – but the costs associated with each – will drive the direction of the options if people with choices, choose the lower cost delivery options.

    Why would most of us that do travel one or twice a week into a commercial area ANYHOW pay EXTRA to have something delivered to our house if we could pick it up when we do the visit we normally do anyhow?

    I stack errands when I head into town. I make a list of the things I need to do, to get.. and so adding one more item to the list called “pick up catalog order” delivered free is a no brainer for me.

    I realize that others who live out in the boodocks may not find that level of convenience but most folks DO LIVE NEAR a post office and what would it take for USPS to rent out space to FedEx/UPS so that customers could save shipping costs by coming to the PO to get their stuff?

  10. Stop thinking so much. What you do is irrelevant. Let the market work. Millions of people making trillions of decisions daily work these things out, Larry. Not you, or any group, whether public or private.

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