Jonathan Reynolds

By Jonathan Reynolds

Levelling the multichannel playing field?

There has been much debate over the relative cost disadvantage facing bricks and mortar retailers in the UK when compared with their pure play competitors. Attention has focused on the physical costs of space and the local tax regime. Distribution centre rental per square foot is compared to prime retail real estate and the differences are striking. These cost differences, it is claimed, allow online retailers to compete very effectively on price, with customers voting with their keyboards. Newly redundant staff at UK photographic retailer Jessops were clear who was to blame (photo).

Meanwhile, in the US, a bill has just made it through the Senate and is now facing debate in the House of Representatives. The Marketplace Fairness Act gives states the right to levy a sales tax upon online retailers active there, provided that the online business has a turnover of more than $1mn – and (and here’s the rub) provided that the state concerned simplifies its tax code.

Previously, such taxation had been deemed overcomplex to levy and administer. But an estimated $23bn in tax went unclaimed in 2012. These days, online retailer have demonstrated their competence in smart targeting and the Act concludes that this competence extends to being able to tax customers differentially. Interestingly, not just Walmart, but Amazon are in favour of the tax. Amazon already pays tax in several states since if has distribution centres or other facilities there. It’s (relatively) smaller online businesses that will face higher costs. However, the Act has to pass through the House of Representatives. The House is not only Republican-dominated, but is also set against any tax rises.

In this case, this is a levelling up of taxation to achieve fairness for all participants in the market. But what about legacy businesses who have the bad luck of suffering from the regulatory and fiscal inertia of the local rental or rates regime, like flies in amber, whilst slicker and more efficient business models trade successfully from cheaper and more efficiently designed premises? Is that just bad luck for the legacy providers? Or demonstrating the enduring survival of the most adaptable? Depending on your view, should the additional costs on legacy businesses be lifted, or should online retailers be expected to play (and pay) fair?

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