Over the last couple of decades the retail landscape in the U.S. has shifted dramatically.  The rise of WalMart, Costco, Home Depot, Lowes, and Walgreens among others have consolidated the choices we have, and in their wake lay thousands of small business owners as well as a few chains.  Many others will close as the juggernauts continue.  Small town America has been dramatically impacted... gone are many of the local hardware stores and pharmacies and many downtowns are more like ghost towns.  Walmart is your only choice.

Nothing wrong with capitalism.  I’m a little more cynical however ... despite all the “good” of these large business, it isn’t without cost.  They have too much power over manufacturers, some dubious ethics , as well as a cost to the general public for their astounding growth.  It would be interesting to compare these costs to the “savings” they provide the consumer.

What cost?  I haven’t seen this discussed before but think about it for a minute. They constantly negotiate special “deals” with local governments that when analyzed actually offer very little if any return for the taxpayer ... more like a taxpayer funded kickback to build it in one town versus another.  Every small business (and large business) they put out of business which goes through bankruptcy costs all of us.  Loans from banks and accounts payable due to manufacturers and vendors that aren’t paid in bankruptcy create losses that have to be passed on to other customers.  Government money to support those now unemployed and broke because they couldn’t “compete” with the power of the big boxes.  So while these companies enjoy the “fruits of their labor”, the rest of us actually end up paying a pretty stiff price for it.

True there isn’t much that can be done ... it’s just one of those realities of a free market system.  It would be different if the big companies had no ability to exert influence over suppliers, and the “purchasing power” of these companies didn’t buy any special favors.  So while we have a free market system, it is full of unfair inequities that makes it easier for the big guy to crush the little guy. Sort of like a sport where one team has the right to change the rules to benefit themselves and the other team can’t do anything about it.

Thus dies another small part of the American Dream.

Over the past few years there has been another shift in the retail landscape as more and more consumers become comfortable buying their goods via the internet.  Whereas the rise of the new power retailers affected the landscape of traditional things like clothing, hardware and prescription drugs, this new shift is impacting some specialty retailers such as camera stores. Again we see a large number of smaller chains and individual stores fall victim because they cannot compete ... and again everyone pays the price.

In this case however, the inequity is more severe than those brought on by the big boxes, and has nothing to do with the actual prices of the items they sell.  Our current retail structure isn’t designed for a order and ship model, and the advantages enjoyed by the “winners” in this part of the retail landscape has little to do with themselves and their own business ... the issue is sales tax.

Order and ship isn’t anything new.  Catalog companies have existed for a very long time, but what has changed is the ease at which products can be researched and ordered, as well as the trust level consumers have in placing orders.  Just a few simple clicks in a web browser, and tomorrow you can have that new thing ... whatever it is. The end result is an explosion in internet sales.

The problem is the current tax system provides a substantial advantage to many that sell via the internet ... a very unfair advantage.  One of the reasons consumers like the internet is the avoidance of sales tax.  I live in Utah, where the tax rate is almost 7%.  This means if I decide to buy a 5D Mark 2 from my local camera store rather than from an internet retailer, I will pay nearly $200 more for the same camera.  It isn’t the camera stores fault and it isn’t the internet retailer’s fault.  In reality the consumer is supposed to pay that tax themselves ... like that is ever going to happen.

So the pricing advantage is actually several levels deep. Obviously as they grow in size and scope these speciality internet retailers also grow in power over manufacturers and get preferential treatment.  Since they don’t operate a retail box that is proportionate to the size of the overall business (if they even have a retail box), their operating costs are less.  Add that to the huge disparity caused by the sales tax issue and you arrive at a savings amounting to as much as 10% of more to the buyer.

I know what your thinking ... well that’s just good for the buyer.  Perhaps, but it isn’t fair.  The guy that runs that camera store should have the same rights to operate a business and not get squeezed out by something like this.  What if suddenly he was allowed to not collect sales tax.  Now he could compete on a much fairer scale.  I know no one likes to pay taxes, but it’s also not fair that one person avoids it by buying online while someone else pays it.

But wait ... it gets worse for our local specialty camera store - it’s like pouring salt into the wound. A potential buyer walks in and spends some time to seek advice on a camera or lens choice.  Typically the store is staffed by knowledgeable people who have used the equipment and can actually supply some useful information.  The buyer gets to handle the equipment, play with it, probably even shoot some sample shots with it.  However, when it comes time to buy it, they decide to “think about it”.  In reality they have decided what they want, but are going to buy it online. Many times this was their intent from the beginning.  The reason is because it’s cheaper... not just a little cheaper ... a lot cheaper.

So the local camera store is the showroom for the internet retailer ... without any chance of being compensated.  The economics are simple for the camera store ... they probably aren’t making any money selling cameras. Between the low margins, the inventory costs, and the labor to work with all of these customers with no intent to buy, there is no money to be made.

Manufacturers are powerless as well.  Both retail outlets are valuable to them.  The only option would be pricing models that offset this ... the small stores would get lower prices.  This is foreign to anyone’s concept, and certainly the large stores have too much power.  Even forced minimum pricing models are scoffed at by these large internet retailers.

Don’t get me wrong ... I’m not blaming the retailers. They are simply doing business as they are allowed to.  They certainly have no motivation to resolve this, for the time being their business is doing wonderful, as more and more of their “showrooms” throughout the country close their doors.

Unfortunately the easiest thing to do is nothing - that’s where it stands now.  Obviously if all retailers were required to collect sales tax for the shipping address the game would change.  While logistically this wouldn’t be very difficult to do, consumer groups fight this because they like this tax loophole. I”m sure companies benefiting from this loophole also lobby against solutions as well, since it will affect their business. State governments are becoming more active, but so far everything is met with resistance.  It’s a big deal to the states, after all we’re talking about hundreds of millions of tax dollars that are not being collected, and while owed by those buying there is no way to enforce and collect.  But no one likes the idea of more taxes, even though this is akin to finding out your neighbor is getting away without paying a fair income tax.  I hate paying tax as much as the next guy, but what I hate worse is knowing someone is getting away without paying their tax.  That just means I have pay more tax to make up for them.

I have no answer, and I know most reading this probably don’t sympathize  - just looking out for number one.  But no one likes playing a game when the other side doesn’t have to play by the same rules, and right now that’s where things stand.  And you won’t read about this on any of the blogs out there, because they all benefit from these companies with advertising.