Should Internet-Only Retailers Pay a “Showroom Tax”?

Not so long ago, Amazon encouraged consumers to go showroom shopping at local stores and then use a smartphone app to connect to Amazon to see if the item the consumer was interested in was available at Amazon for less. Essentially, Amazon was using brick-and-mortar (b&m) retailers as auxiliary showrooms. Needless to say, this didn't go over well with the b&m retailers, especially the small, independent bookstores, and for good reason.

Of course, there is no practical way to prevent such comparison shopping by consumers. A b&m retailer can fight back by no longer carrying any Amazon-branded merchandise, which is the approach Target took, but that will, for the most part, be an exercise in futility -- how many Amazon-branded products are there and how many are sold by the b&m retailer? Perhaps a smarter approach would be to assess a "showroom tax" on products sold by Amazon (used here as a euphemism for Internet-only retailers) and passing the tax receipts on to the b&m retailers either directly or indirectly. Such a "tax" (I am using the term tax very loosely; a term such as surcharge or fee or service adjustment or other similar-concept euphemism works just as well) would have Amazon contributing to paying the costs of maintaining a b&m store without chasing customers away because they openly are comparison shopping (which, it has been reported, some independent bookstores have done).

There are a couple of ways that a showroom tax could work. (Although I use Amazon as the example, the idea is for any Internet-only retailer to be charged the tax, not just Amazon.) I think the easiest way it could work would be if the wholesalers/manufacturers of goods that are sold to both Internet-only and b&m retailers charged and collected the tax and either used the proceeds of the tax to lower the wholesale price of the same goods sold to b&m retailers or provided b&m retailers with a rebate equivalent to the amount of tax collected.

Essentially, it could work like this: If Amazon buys/sells 100 Sony TVs, Sony would collect the tax (say $1 per unit) from Amazon in addition to the wholesale price. Then when Target buys/sells 100 Sony TVs, it would either have $1 deducted from the wholesale price of each unit or it would pay the same wholesale price but receive a rebate of $1 per unit.

The alternative would be to really make it a national (federal) tax that is collected by the government and then distributed to b&m retailers by way of a tax break that is available only to b&m retailers.

I realize it is not as simple to do as I make it appear, that we are talking about a fixed pool of money that would have to be divided equitably, and the per-unit tax would need to be of a sufficient amount so as to be meaningful, but it could be done. I don't want to nitpick details; it is the broader concept that is of interest at the moment.

The argument will certainly be made that b&m retailers are not worth saving if they cannot compete effectively; after all, there is a cadre of ebookers who currently take that position as regards b&m bookstores. Many of those who make that argument see nothing wrong with Internet-only retailers making use of the b&m stores as free showrooms; a few ebookers have boasted that that is exactly what they do: visit a local b&m bookstore to check out an item and then order it online because the price is less or they save sales tax.

The problems with the ineffective competition argument are that it (1) compares apples with oranges, that is, the playing field for b&m and Internet-only businesses is not -- and cannot be, as currently contrived -- level, and (2) it assumes that if all retail went Internet-only the consumer would be better served, a proposition that has neither been field-tested nor proven and on its face strikes me as inherently incorrect. It is easier to accept with certain products, like books and music, than with others, such as TVs. (If you couldn't showroom shop TVs, how would you determine whether you like the picture and features better on the Panasonic than on the Samsung or Sony LCD TV?) Even companies like Apple and Leica have found that showrooms are important sales tools.

Companies like Amazon are able to reduce their costs, and thus offer a lower price to the consumer, because they do not have to support b&m storefronts in order to sell their goods -- someone else already has a b&m storefront where those goods are displayed, and that someone else absorbs all the costs of the b&m store. I'm not suggesting that this advantage of the Internet-only retailer is illegal or immoral; instead I'm suggesting that even Internet-only retailers recognize the importance of showrooming, as witnessed by their encouraging consumers to showroom shop locally but buy online to save money.

Such consumer behavior cannot (and should not) be forbidden, In fact, it probably should be encouraged, but only if the playing field is leveled. It is impractical to devise methods to force currently Internet-only retailers to become also b&m retailers. Besides how many more b&m retailers selling the same merchandise do consumers need? The issue isn't purchasing options, which now exist in abundance; the issue is spreading out the costs of showrooming among all those who rely on it.

Local b&m retailers would be able to compete better with Internet-only stores if their overhead costs weren't burdened with the extra costs that are part and parcel of having a physical presence that is open to the public. Because the Internet-only retailers rely on the ability of the consumer to see the merchandise at a local b&m, the showrooming effect, it seems appropriate that the Internet-only stores should share the cost burden of maintaining the b&m showrooms.

In a way, Amazon demonstrates the correctness of this approach of cost-shifting/sharing. When a consumer buys an ebook from Amazon, Amazon charges a delivery fee to the author. Unlike some other ebook sellers, Amazon doesn't absorb the costs of delivery as a cost of doing business; instead, it takes ancillary costs like delivery off the top and then does its split with the author/publisher. The consumer doesn't directly see this, but it is a factor that goes into (or should go into) the author's calculation of the ebook's price. Whether fair or not, by not absorbing all of the delivery costs, Amazon is able to charge less for ebooks than competitors who do absorb some or all of the delivery costs.

Similarly, by not needing to have b&m showrooms, Amazon is able to sell products for less because its costs are less, yet it is able to also take advantage of the showroom effect because it can encourage consumers to check out a product hands on locally and then buy for less online.

It seems to me that under the circumstances, Internet-only stores should pay a showroom tax to help support the b&m showrooms they rely on and to help level the playing field from a cost/price perspective.

image by donrenexito

27 thoughts on “Should Internet-Only Retailers Pay a “Showroom Tax”?

  1. Eh. Comparison shopping predates the internet, so I don’t see why one particular type of retailer should pay a fee for using it to their advantage.

    And besides, I don’t see a practical way that you could implement it.

    1. Well, they could just ban comparison shopping altogether; adopt a “you saw it, you buy it” policy.
      Or, they *could* offer enough value for in-store shopping that people, you know, *choose* to buy B&M instead of being forced. Plenty of stores still do it right now.
      It is only in publishing that we hear calls for consumers to be protected from their own choices. Then again, publishing is the only business in court these days for colluding to raise consumer prices.
      If half the time and effort wasted in looking for magic bullets to kill Amazon–legally and illegally–were spent trying to deliver a better product at a better price, the industry wouldn’t have an “Amazon problem” to start with.

      1. It isn’t a simple solution to offer “more value” than Amazon in a B&M store. The margins are just so much thinner for a company that has a physical presence there is no way they can compete on price. It costs huge amounts for rent, staffing, utilities, etc. that Amazon simply doesn’t have to pay. No company can compete on price with Amazon, and for most people that is sadly all that matters (and then they run around every election cycle screaming that China “took ‘er jobs!”).

        So you’re left with things like exclusive editions or events (author signings and such) to make the B&M stores unique from Amazon. Is that enough “value” for people to shop at a B&M over saving a third of the price from Amazon? My gut says no.

        1. What about customer service?
          Maybe personnel who understand the products they sell? There is no way to add value?
          Or are we to simply accept that the only value bookstores offer is in stocking product? Might as well use vending machines, then.
          Business 101: if you can’t add value you shouldn’t be selling that product.

          1. Is having a staff member who knows their product worth the extra 30-50% cost to most consumers? Recent history would say no – look at what happened to many indie bookstores in the last decade-and-a-half. The vast majority of consumers care about one thing, getting the lowest price. Everything else is inconsequential.

    2. Oh, oh… Mistah Kottah!
      I know how they can implement it!
      They can charge admission!
      You pay to enter the premises–which are cell-phone jammed, of course–and then you get creditted the price of admission when you buy something.
      If you return the purrchase, even unopened, you get charged a restocking fee.
      That would totally work and stop showrooming dead in ts tracks. ;)

  2. My FB Post:
    BTW – totally disagree with the article – how silly – this practice – comparative shopping – is older than any of us. GET REAL! My dad did this every time he bought a new car – should he have gone back to each dealer and given them $10 because he looked and drove a car there but bought down the street? NO. Should we pay such a silly fee when we don’t even go into a store? Will there be a “I looked at this at Target so charge me more” button? I think not… I don’t need to go in the store to see and buy stuff from the Internet – it’s called pictures. Silly…

    1. I agree with you Fred. This is one of the silliest ideas/articles I have read in awhile. There is no reference to any lawmakers that are considering such an idea and that is where such a notion has to take place.

      There is one thing that B&M stores has that Amazon doesn’t. It is that you can purchase it and pick it up at the same time. That is why everyone has not switched to Amazon and retail stores still exist. If it were all doom and gloom then everyone would be out of business.

  3. Totally disagree with the idea that this should be mediated by the government. How can the government equitably discern which consumers are showrooming and which are not? Let’s say that there aren’t even any stores which carry a particular product in my state…? Should Amazon then be charged extra when I buy it from them? This unfairly penalizes consumers who buy purely online and didn’t showroom.

    This is something for the market to handle. If consumers feel showrooming is necessary, then they will pay for it, somehow. Perhaps some stores will charge fees to try out merchandise. Perhaps Amazon or some other company will create a store where people can pay to try out, or to rent electronics. Or, people may just abuse Amazon’s return system.

    However, I think what actually will happen is that electronics retailing will become more like Apple stores, which I hear are very profitable.

  4. Just what the world needs. More interference with the free market by politicians, renowned as they are for their ingenuity, efficiency and probity.

    As a matter of fact, I’d read about 250 words of this when I thought “this must be by Mr Adin” :-)

  5. I live in a place with few choices of stores. Will I pay less of your tax than someone in a metropolitan area who has lots of places to comparison shop? After all, the person in the city is stealing more free looks than I am.

  6. This is such hogwash.
    Should the B&M retailers pay Amazon for “in person” tax?
    B&M has the advantage of having the shopper in the store, that is why they have loss leader sales.
    They want shoppers eyes on all the products.
    Amazon doesn’t have that luxury, they have efficiencies and a little better prices.
    Most things I check, the difference is not worth waiting for the shipping.

    Looks like someone needs to learn some basic Economics.

  7. You’re forgetting a whole world. What if I saw the book at *my* local B&M store? I’d have to pay that tax and my store wouldn’t see a cent of it. Solutions like this are against every grain of an international world-wide internet.

  8. Why should I prop up old business models when making a purchase online? Sink or swim, B&N. Figure it out, or die trying.

    I lament the bookstores closing too, but change happens, and anyway, most of the book stores were all big box chains, why should I give a crap what happens to a conglomerate? They already edged out the local booksellers for the most part, an even more lamentable situation, and no one watched out for those local booksellers either.

  9. Um, why can’t Amazon (and other internet retailers) just pay sales tax, period? I think that would be the only truly fair option.

    1. It would make no difference in the market: they would *still* be a lot cheaper and *still* stock a zillion more books.
      Also, the issue is *not* about Amazon *paying* sales tax: that is an intentional mis-statement from the anti-Amazon crowd. The issue is that Amazon is not obligated to *collect* sales tax in states they do not have a physical presence.

      Amazon pays their own taxes and collect sales taxes where they have to but they believe they should not have to serve as surrogate tax collectors everywhere.

      How does fairness have anything to do with business doing government’s dirty work for them in locations they don’t have facilities? Might as well serve as tax collectors for Bora Bora or Zimbabwe.

      1. Ok, calling tax collecting “government’s dirty work” gets you a lot of points. We would all prefer to pay no taxes at all, wouldn’t we? The business must abide by local laws, and if those laws impose additional burdens, so be it. I am sure Amazon can afford it, having grabbed quite a significant share of the country’s retail business already.

        The bottom line is, a state can require Amazon to collect sales taxes when shipping into the state, and some states already do it. New York, for example. And I believe they should. No, the sales taxes are not an insignificant part of the price difference. I personally know many people who shop online for the purpose of saving 7% on the sales tax. On a $1,000 item it makes quite a bit of difference, even when the price is intentionally fixed by the manufacturer (i.e. iPads).

        In fact, I think states should adopt a policy of requiring all online retailers to collect sales taxes. Perhaps even impose an additional 1% or so “showroom tax”. I believe it would be only fair.

        1. No, states cannot *force* Amazon to be their tax collectors.
          They can try, they can bluster, they can intimidate and they can negotiate. Which Amazon has done (at some point the legal feels start to hurt) in NY and California.
          But the interstate commerce clause has not yet been totally perverted.
          States cannot apply their laws to residents of other states (any more than the can to other countries) just because they conduct business with their residents. That is still the law of the land.
          Once the product crosses state lines, it becomes federal jurisdiction. Which is why there is the never-ending effort to get *Congress* to force internet sales tax collection. And Congress still has said no.
          Congress could; NY can *not*.

          1. Right. *Physical* presence.
            Which Amazon doesn’ have in the states that most whine.
            What they have done is try to define presence as “doing business in” which, of course, doesn’t fly in federal court.
            Amazon does collect State tax in those states where they do have a physical presence but they, quite legally and properly, refuse to act as tax collectors where they don’t.
            And the whole thing is irrelevant because even with sales tax added, they *still* would get the business.
            All the whining is just “sound and fury…”

  10. It also works the other way around. I have used Amazon reviewers reviews to make purchases at stores. I have been in Best Buy several times with Amazon running on my phone to help make decisions.

    1. I have TOTALLY done that. I mean, seriously. Hours a month, somtimes, of Amazon on the smartphone so I can make decisions in a store. Recently, this was invaluable when choosing a new vacuum cleaner. I was in a retail store and had NO way of knowing what was best to buy.

  11. What about if I buy a book at Barnes and Noble after looking up its Amazon reviews (which I’ve done many times)? Does they have to pay a tax in the other direction, too?

  12. The solution to this problem is simple. Manufacturer’s will have to stop putting universal product #’s (such as the UPC) on the consumer packaging/cover. It will become the responsability of retailers to label products with their own bar codes as part of stocking.

    I know there will be lots of moaning about moving backwards like this, but nothing else will solve the problem of people comparison shopping with one ‘click’.

    1. How is this going to help? I use model names and numbers not UPCs. Also there is a book app on the iphone that finds books buy the cover and doesn’t even need to use the UPC.

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