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E-commerce And Grocery: This Time It’s Real

There’s nothing like massive disruption to accelerate a trend that was already occurring in the market.  In this instance, a global pandemic the likes we’ve never seen before has caused significant change in the retail landscape. While grocery stores have remained open and fared better than any other retail segment during the crisis, e-commerce grocery sales have also accelerated at an unprecedented level that has changed the game, likely irrevocably for supermarket retailers.  For many customers, it is easier (or safer) to purchase on-line for delivery or contactless pick-up.

At the same time, e-commerce for grocery has also had an awkward coming out party. While services such as Instacart are literally hiring hundreds of thousands of new employees, the surge in demand has revealed significant cracks in the system along with the difficulty of scaling the business. Wait times for getting a slot for an order have sometimes exceeded four or five days and order fulfillment rates have been abysmal as supermarkets wrestle with out-of-stocks driven by the massive surge in demand. So, while more consumers are turning to e-commerce, they are also seeing it at its worst.

As I’ve written several times before, there are multiple reasons why the grocery category has historically been well under-penetrated relative to other e-commerce categories. Multi-temperature products, awkwardly sized and shaped products, product and SKU proliferation, delivery challenges, combined with razor thin margins have kept e-commerce penetration to around 3-4%. However, this penetration has likely tripled in the past six weeks and we are probably around 10% penetration today. And while some of these gains may be given back in a return to normalcy, it is also likely that the new normal will feature a much higher e-commerce penetration rate along with continued growth. While 15% e-commerce penetration for grocery used to have a “best-case” scenario of happening by 2025, this is much more likely to happen and perhaps several years sooner.

But, and it’s a big but, profitability and an excellent customer experience remain elusive. In-store, in-aisle pick (the primary method for Instacart and Amazon Prime Now) will always be less efficient and have poorer in-stock conditions associated with it than fully automated centralized solutions (as represented by the Kroger/Ocado partnership). But, that model is expensive and time consuming to build and takes time to maximize efficiencies.

As I’ve discussed before, a number  of technology companies are deploying efforts to find a middle ground. Referred to as MFC’s (micro-fulfillment centers), they combine robotics and automation in a much smaller space. This allows them to be less costly to build, be located in a back room of an existing store or dark store which provides closer consumer access, either for delivery or pick-up. Takeoff Technologies, one of the leaders in the field, just published a white paper entitled “How to Win in Online Grocery” that discusses the trade-offs between price, variety and speed that retailers will need to balance to win. They argue that MFC’s optimize that relationship. Along with Takeoff, other technologies include Autostore, Alert Technologies, and Fabric. While all have pilots underway, expect an explosion in the use of this technology as grocers gear up for the new level of e-commerce sales.

At the same time, while delivery has been the dominant way to get groceries to the end consumer, the cost and complication will have limitations. Led by Walmart, we would also expect curbside, contactless pickup to grow significantly as customers and retailers adapt to new realities.

The ways that COVID-19 will impact the world of retail are just beginning to be felt. Long-term social distancing, restrictions on customer counts and a less comfortable shopping environment will hasten even further e-commerce adoption.

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Five Trends That Shaped A Decade

As the Holiday season of 2019 winds to an end, I am going to use this time to look back and to look ahead. The 2010’s were a transformative decade for retail. While Retailmageddon didn’t exactly come to pass, we saw a significant slowdown in physical brick and mortar retail growth and an unprecedented number of retail store closures. From a macro-standpoint, I can point to these five significant trends that shaped retail as we know it coming into a new decade.

  1. Overall strong economic and retail growth. After a crippling recession in 2008-09, retail sales rebounded and drove sustained growth through the decade. Overall sales grew as the overall US economy flourished, driven by positive consumer sentiment and historically low unemployment. As retail sales approach nearly $5 trillion, retail (and consumer spend) has been the engine of the US economy.
  2. The rise of Amazon and e-commerce. If we look at the changes in the top 10 retailers over the past decade, there is one company in particular that sticks out. Amazon is now the second largest retailer in the U.S. and remains one of the fastest growing as well. While the rest of the top 10 remained constant (Walmart was and most decidedly remains the big kid on the block), Amazon’s meteoric rise has changed the complexion of retail. And with Amazon comes the subsequent growth of e-commerce. While now accounting for around 10% of total retail sales, its double-digit growth rate and disproportionate impact on key categories (books, electronics, apparel) has altered the retail landscape. As e-commerce approaches 20% plus of sales within a category, the impact on retail has been profound.                                                                                                                       
  3. The collapse of the middle—the everlasting move to value. Retail success has been disproportionally weighted to the extremes. Those companies who have demonstrated that they can provide real value for the consumer have been winners over the past decade. Walmart and Costco, of course, are demonstrations of this trend. If we look beyond the top 10, three retailers in particular stick out. TJX, Aldi and Dollar General all show up in the top 20 in sales and all continue to be on growth trajectories. The move to value is nothing new in retail but this decade exacerbated the trend, even during strong economic times.
  4. Private equity and its impact on retail economics. Private equity played a meaningful role in the past decade in the world of retail. And not necessarily to its benefit. Most of the notable bankruptcies during the past decade have seen a private equity component associated with it. Toys R Us, Sports Authority and Gymboree are three examples of retail bankruptcies during the decade that had significant private equity ownership. While private equity alone is not responsible for the disappearance of these chains, high debt levels and leverage makes it difficult for retailers to maneuver during difficult times. Private equity played a prominent role (and likely will continue to do so) in the flexibility of retail firms to survive during difficult times.
  5. The power of the consumer. In the end, the biggest influence on the world of retail over the past decade is the increasing power of the consumer to efficiently vote with their wallets. The conversation with the consumer has moved from a one-way advertising model to a holistic feedback loop. Purchasing is now fluid, no longer tied to a particular geography. This means that anyone with a good idea can sell to any consumer around the world. Direct to consumer brands can bypass traditional supply chain, distribution routes and channels to appeal directly to the consumer. The biggest drivers of this change are both technologies that began in the 2000’s but took off in the past decade. Smartphone usage boomed this past decade, with 265 million users in the U.S., four times what it was in the beginning of the decade. Social media usage also nearly doubled as a percentage of the population using various platforms as well as the time spent online. This has given customers new ways to interact and communicate with brands and retailers.

In the next blog, I will look at the future of retail. Where will we head in the next decade and what retailers will need to do to be prepared.

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Walmart’s Glass Is More Than Half Full Heading Into The Holidays

Walmart’s performance in the third quarter should serve as a powerful reminder to the retail community that the world’s largest retailer remains a formidable competitor even as Amazon continues its assault on the rest of the market.

Comparable store sales were up 3.2% in the U.S. with a combination of traffic gains and higher transactions. Although comps marginally slowed year over year, this is now the fifth year of consecutive comp increases. Not bad for a mature retail company no longer being helped along by a fleet of younger stores.

Online comps were up 41% this quarter. The company attributes much of that growth to the grocery business. Online pick up is now available in over 3,000 locations and home delivery called Walmart Delivery Unlimited through about 1,400 locations. Walmart is attempting to match Amazon in both speed and price around home delivery.

Results and guidance suggest a healthy Holiday season as impacts to date from tariffs have not materialized and U.S. consumer confidence remains strong. If there are any warning signs on the horizon, they would be in the following areas:

  • Sam’s Club’s performance was comparatively weak, with comparable store sales only rising 0.6% in the latest quarter. As Sam’s former CEO takes the helm at Walmart, his replacement has just been named. Kathryn McLay. She was most recently Executive Vice President at the 700 unit Walmart Neighborhood Market and was Senior VP of Supply Chain prior to that.
  • There is a growing cost associated with rising e-commerce sales. The company is locked in a war with Amazon, who raised the stakes last week by eliminating the fees associated with Amazon Fresh for Prime members. Walmart acknowledged that they need to grow (higher margin) general merchandise sales to drive increased profitability.
  • The loss of Greg Foran as Walmart U.S. CEO has yet to be felt and the tensions between the e-commerce and brick and mortar divisions continue. For a company of Walmart’s size, driving innovation and profitability will be a core challenge.

Even picking holes in the performance, it is hard to bet against Walmart. They are navigating a treacherous retail environment as well as anyone and providing a roadmap for other retailers. Walmart was first out of the gate for earnings. It is still too early to read whether their success translates to the rest of retail and the U.S. economy, but they have set a high bar for others to hurdle.

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Different Leaders, Different Results: Modern Retail Requires A New View From The Top

CHICAGO, IL- Aug. 5th, 2019 In this report McMillanDoolittle details shifting consumer expectations across all retail categories – and the blind spots the leaders of both legacy retailers and digital natives must overcome as they adapt to an integrated retail landscape.

In Different Leaders / Different Results McMillanDoolittle estimates that consumers already spend $.45 of every dollar within categories where they expect their retailer to provide an integrated user experience, allowing them to make purchases and fulfill their transactions in the way that best suits their needs.  These retailers require a new set of capabilities – driven by a new leadership mindset – to provide an integrated consumer journey.

As consumer expectations have shifted, new winners have emerged. Target, Warby Parker, & Domino’s are retailers that top our list.  Meanwhile, some retailers that are just now opening stores are missing the opportunity to build integrated capabilities from a clean foundation.  Many Digitally Native retailers are rapidly opening stores but do not operate “as one” with their digital presence. The customer is not at the center.

Due to their heritage, both digital natives and legacy retailers have executive blind spots that can be barriers to effectively operating an integrated retail model.  McMillanDoolittle research found that only 7% of the leaders of digital natives come from traditional retail functions such as buying or merchandising.  Meanwhile, legacy retailers lack marketing-driven retail expertise, with only 5% coming from marketing and even fewer have technology or analytics expertise.  Both leadership profiles have their advantages – and blind spots. These legacy retailer and digital native executives can learn from each other to develop new models for leadership, customer-centricity, multi-channel shopping, and operations.

McMillanDoolittle forecasts that spending at integrated retailers will nearly double to $.86 of every dollar within five years. It remains to be seen which culture of leadership – and business model – can integrate more quickly to capture this share but doing so will be key to the future success of each.

McMillanDoolittle LLP is a retail consulting firm based in the U.S.A.  Since 1986, our team has helped retailers and suppliers worldwide to successfully navigate and conquer the changing retail marketplace.  There are only winners and losers in retail. Armed with decades of experience, an unparalleled commitment to your team, and play-making insights, McMillanDoolittle helps you win.

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Business Wire – Official Press Release

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Robots Are Coming To Grocery Fulfillment: Can They Drive Profitability?

As I’ve written several times before, there are multiple reasons why the grocery category is well under-penetrated relative to other e-commerce categories. Multi-temperature products, awkwardly sized and shaped products, product and SKU proliferation, delivery challenges, combined with razor-thin margins have kept e-commerce penetration today to under 3%. However, there are multiple efforts underway to change this, from massive investments in buy online, pickup in-store infrastructure (Walmart), third party, on-demand fulfillment (Instacart) along with a host of new investments in sophisticated robotics and AI from a variety of start-ups and established companies. These efforts are all designed to address the fundamental challenge of reducing costs/increasing efficiency to make grocery e-commerce more profitable, or frankly, profitable at all.

Three new developments in robotics are all working on the profitability equation for grocery e-commerce. Commonsense Robotics, Takeoff Technologies and Kroger/Ocado are approaching this issue from different but equally fascinating angles. All are implementing automation and robotics in different ways, but they are designed to address one of the key fundamental cost challenges—picking groceries. The other, of course, is delivery, which also is seeing advancements through route management, autonomous delivery and naturally, not delivering at all (pick-up).

As Scott DeGraeve, COO and Co-founder of Locai Solutions explains, “Robotics in e-grocery are aimed at making a step function change in labor costs and throughput time. As customer penetration grows, more and more retailers are feeling the effects in their busier stores of the challenges of the in-store pick”.  While the efficient way into e-commerce is through utilizing existing in-store infrastructure, it is not likely the long-term solution.  DeGraeve cites congestion in the aisles, higher out of stocks, and issues with labor productivity as key issues, with “stores designed to sell products, not provide for an efficient 40+ item order pick”.

But, are robots truly the answer? Three notable efforts are designed to address this.

Takeoff Technologies, creator of the world’s first automated micro-fulfillment centers (MFC’s) recently announced a partnership with Wakefern Food Corp., the largest retailer-owned grocery cooperative in the U.S. Takeoff is an eGrocery solution that leverages automation on a hyper-local scale. Orders are placed online through established retailers and Takeoff’s automated technology fulfills the order using robots in the MFC’s. These centers are significantly smaller and less capital intense than full scale solutions, which could allow faster deployment and centers closer to the end consumer. The first such center will open in Clifton, NJ and work with Wakefern’s ShopRite from Home platform. It promises orders of up to 60 items being fulfilled in minutes.

CommonSense Robotics, an Israeli start-up, is also focusing on micro-fulfillment centers. Their twist—the first underground and automated grocery delivery center that will make one-hour deliveries for grocers while utilizing existing space and can also be placed closer to the consumer in denser urban markets. Their new micro-fulfillment center will be in downtown Tel Aviv, located in the parking garage of the city’s oldest skyscraper, Shalom Meir Tower, and will only take up 18,000 square feet of triangular space.

Finally, Kroger’s partnership with Ocado is an example of automated fulfillment centers at scale. Kroger has announced that they plan to build as many as 20 automated grocery warehouses with a capital cost of up to $55 million for the land and equipment. UK based Ocado is clearly a leader in the space and is perhaps the only company (certainly a public one) that has shown grocery e-commerce profitability at scale. Kroger has announced the development of the 355,000 square foot Monroe, Ohio fulfillment center known as “shed” in spring 2021. These centers are also powered by sophisticated technology and advanced robotics and Ocado is perhaps furthest along in streamlining every aspect of the process (order, pick and delivery). The disadvantage of these centers is capital cost, time to build and time to achieve economies of scale.

From in-store pick, dark stores, semi-automated fulfillment, micro fulfillment centers to full scale automated warehouses, the rush is on to figure out a way to lower costs of grocery fulfillment. As always, there will not be a one size fits all solution for the right way to approach the problem. The best retailers will have flexibility in their solutions (urban vs. suburban, delivery vs. pick-up, immediacy vs. scheduled) that ultimately meet consumers, at a profit.

Neil Stern for Forbes

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Amazon At 25: A Fascinating Journey Through Retail History

In July 1994, Jeff Bezos founded Amazon.com. 25 years later, he is the wealthiest man in the world and Amazon controls 50% of the online business in the U.S. with no signs of slowing down. I have been tracking developments in the world of retail for an even longer period of time (by writing for Retail Watch which began publishing in July 1986) and wish I could tell you that I saw it coming. Amazon didn’t even make my radar until May 1997, when I wrote about its IPO and book wars with Barnes & Noble.  And at that time, internet was still a dial up, text heavy, largely unsearchable world where, I noted, a phone line would take your order if you were uncomfortable providing credit card details online.

Much has changed at Amazon, and in the world of retail, in 25 years. Here’s a quick look back at how Amazon has progressed in this period:

1994—While Amazon didn’t make my radar, I reviewed some of the stories that were covered during that time. I wrote about Expo, Home Depot’s revolutionary home store that is now defunct, but I also explored a number of “new” concepts that have withstood the test of time including CarMax, Dave & Buster’s and Anthropologie.

1997—Amazon goes public (at the equivalent of about $2/share in today’s stock price) with $16 million in sales and selling exclusively books. Music comes along in 1998, a deal with Toys R Us to move into toys comes along in 2000 and apparel in 2002.

2003—Amazon Web Services debuts in 2003. It would have been impossible to predict at the time, but this became the profitability engine that would fuel continued e-commerce expansion and operating losses.

2005—Amazon Prime is born and is probably the game changer, with 100 million global users and stickiness to the company that is almost impossible to replicate. Over time, Amazon sets the standard for shipping and the race towards immediacy.

2007—Kindle becomes the first major product with Echo (probably the real game changer) in 2014.

2009—Zappos is Amazon’s first major acquisition.

2015—In an ironic twist to the bookstores Amazon put out of business, Amazon Books debuts and ushers in (maybe) an era of Amazon in the physical world. Amazon Go arrives towards the end of 2016.

2017—Whole Foods is acquired marking a significant push into grocery and the world of physical retail. 2019 will likely mark the opening of an all new Amazon food format.

Of course, the timeline obscures the massive impact that Amazon has had on the industry. Revenues equal $232 billion at the end of 2018 with 50% of that occurring through third party sellers. Amazon operates in 13 countries around the world and the very mention of it entering a new market (or new product category) sets the entirety of the retail world on edge.

What is clear is that there are very few stories of true retail disruption in the market.  For fun, look at the Rule of 16—about every two decades concepts come along that fundamentally disrupt the marketplace. If this rule holds, the current major disruptor to retail already exists…it just may not be recognized as such (and it will quite likely not originate from the U.S.).

  • Walmart was founded in 1962, as was Target and Kohl’s. This introduced an era of discount stores that disrupted the department stores and became the dominant form of U.S. retailing.
  • Home Depot was founded in 1978. Big box category killer stores proliferated the retail market in the 1980’s. Almost holding to my theory, Price Club formed the club business in 1976 with Coscto (and Sam’s) entering the market in the early 80’s.
  • Amazon is founded in 1994, as was Old Navy.
  • So, who came along in 2010? Warby Parker was founded in 2010 and arguably heralded the era of digitally native retailers who begin their origin story online. I will cheat and make the observation that the Taobao mobile app was launched in this year as well. While Alibaba dates back to 1999, the mobile app becomes the real business game changer.

What will the next 25 years be like for Amazon? Likely a whole lot different than the first 25. Can Amazon drive wholesale adoption of voice activation as Alexa becomes embedded in more and more devices? Will physical retail stores play a more prominent role in its future as omnichannel converges? And perhaps most critically, how does Amazon contend with being the established behemoth versus the scrappy underdog? As Jeff Bezos has said, “Amazon is not too big to fail. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.”

This article first appeared in Forbes.

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Wayfair Wayfails In Social Activism

Efforts to intervene in social, political, economic or environmental reform have largely been driven by activist organizations and individuals. Retailers, for the most part, have been content to stay on the sidelines for fear of alienating a particular customer group and targeting one demographic group over another. This middle ground of indecision, however, is no longer an option. Retailers are being forced to take stands on social issues by both customers and employees. And oftentimes, the controversy comes from an entirely unexpected place.

Wayfair, an online marketplace for home goods, is one such example. Over the last few days, Wayfair has landed in the middle of a politically charged discussion on immigrant detention centers on the United States and Mexico border. The detention centers are being overtaxed and the quality of life for the detainees has been quickly degrading.

The issue (and controversy) arose when Wayfair employees learned that the company had received a $200,000 order from a government contractor that manages border detention camps. Upon discovery, Wayfair employees sent a signed petition to the leadership team of the company asking to cease all current and future business with contractors participating in the camps’ operations and to donate the proceeds of this sale to a non-profit helping immigrants. This demand was predicated by the belief that Wayfair shouldn’t be “enabling, supporting or profiting from [the detention centers]” by doing business with government contractors involved.

While this situation presented an opportunity for Wayfair to follow in the footsteps of other retailers who have taken strong social stands such as Dick’s Sporting Goods, Patagonia, and CVS, Wayfair’s leadership team decided to ignore the protest from employees and fulfill the order. This decision has led to an escalation of the issue including an employee walkout and caused backlash with customers as well, with some calling for boycotts against the company. The aftermath of this situation is still unfolding, but ultimately this was a missed opportunity to resonate with its employees and customers. This action has now impacted how future employees will view the company’s core values and might deter customers from shopping with Wayfair. Wayfair’s stock has ping-ponged up and down so it is difficult to understand the long term impact.

The situation Wayfair finds itself in is a difficult one. An argument could be made that these centers are trying to improve conditions and Wayfair is assisting. But, management should have been more sensitive to the larger optics and followed the employees’ suggestion to donate the proceeds to a worthy charity.

Wayfair’s employee walkout should be a shot across the bow for retailers everywhere. Businesses are not faceless organizations that only sell products, services, and experiences. Consumers (and employees) want to align their values with the companies they are doing business with. By humanizing retailers, we have raised our expectations of their actions in moral, ethical, and political situations. The companies that don’t take retail activism seriously will likely see history repeat itself.

Wayfair, quite by accident, joins the growing list of companies thrown into the world of politics. I don’t think they want #wayfairwalkout to be the hashtag du jour.

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Is The Future Of Retail Unfolding In China?

The first Walmart in China where smartphones can be used to pay for items and is available on the JD.com online platform, in Shenzhen, Guangdong province. / VCG Photo

While not nearly as dramatic as Walmart’s $18 billion bet on Flipkart India, their recent announcement to invest $320 million in China’s Dada-JD Daojia could provide a glimpse into the future of retail.

China is a fascinating market to study retail’s evolution. It is the largest e-commerce market in the world with a massive and increasingly affluent population. More significantly, they have the advantage of limited existing infrastructure. These factors are allowing aggressive companies to quickly create assets that are more adept at meeting current customer needs without worrying about cannibalization or utilization of existing brick and mortar.

The two companies to watch are Alibaba.com, which has the largest marketplace in the world and JD.com. I have written quite a bit about Alibaba, who just struck a vast reaching delivery partnership with Starbucks (fast delivery through their ele.me platform) and is innovating in brick and mortar with Hema stores (already 60 stores), which are fresh grocery outlets that double as efficient e-commerce distribution hubs. The other giant is JD.com, of which Walmart owns a $5 billion stake, who announced revenues of $55 billion last year serving the Chinese market. JD.com has been aggressive with futuristic stores as well as building out a sophisticated distribution system that includes drone deliveries and high tech warehouses.

The Dada-JD Doajia investment is a great example of the high-tech, low-tech option which will likely be the right solution in emerging markets. Dada operates a network of 5 million delivery men (yes, 5 million!), while JD Daojia partners with retail stores like Walmart and provides one-hour delivery services on groceries and other items. Such partnerships allow Walmart to offer fast delivery and access more consumers without building out significant brick and mortar or having to develop its own delivery network.

If there is any doubt as to Walmart’s intentions, just follow the money and the investments made into on-line retail. This is the third deal in the past year where Walmart has made a substantive investment in a foreign e-commerce retailer.

High tech stores, futuristic drones, sophisticated online-to-offline networks and a huge cadre of sheer (and at this point, inexpensive) manpower is fueling a retail revolution in China.

Neil Stern for Forbes

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Is It E-commerce Retailers’ Turn To Pay The Piper?

In March, President Donald Trump caused a stir by accusing Amazon of paying little or no state and local taxes. Research then concluded President Trump was wrong (imagine that?); Amazon does pay sales tax.

True, this was a more recent development, within the last few years. Amazon’s historic growth did come at the advantage of not collecting sales tax in most states as it began. The underlying ruling that allowed Amazon to skirt around local and state tax laws was overruled last week in the Supreme Court’s decision in South Dakota v. Wayfair.

Prior to the court’s recent decision, e-commerce businesses were allowed an advantage that brick-and-mortar stores were not – tax avoidance. The court’s prior ruling in the 1992 case of Quill Corp. v. North Dakota required a “nexus of connection” or physical presence before states could impose their tax jurisdiction on a business. At the time, e-commerce was a small business by today’s standards, and there were over 6,000 separate sales and use tax jurisdictions in place. The court believed the thousands of tax jurisdictions and rules would restrict trade and cause an undue burden on mail-based catalog retailers. Little did the courts imagine the specter of a new threat to retail — e-commerce.

File Photo: Amazon boxes are seen stacked for delivery in Manhattan, New York, U.S., January 29, 2016. REUTERS/Mike Segar/File Photo

Fast forward to today’s highly competitive retail environment and e-commerce is now about 12% of total retail sales and continues to grow at a double-digit pace. In addition, our reliance on mobile phones for shopping and everyday tasks is second nature. As e-commerce sales increased, the tax revenue for states diminished. Justice Kennedy estimated the tax loss to states between $8 billion and $33 billion. Past bi-partisan efforts in congress to fix the tax discrepancy and force e-commerce players to collect sales tax (or a national e-commerce tax) have gone nowhere (imagine that).

In the formative years, the South Dakota v. Wayfair ruling would have delivered a deadly blow to fledgling e-commerce businesses. But now, major impacts to sales are not expected. The ruling provides a more level playing field for multi-channel retailers who were previously forced to pay the taxes while some of their competitors didn’t.

Jim Okamura, the leader of McMillanDoolittle’s Digital Practice, believes that “the value proposition for online shopping does not change. The value of e-commerce to encompass the customer experience, the convenience of anytime, anywhere, and expanded selection all outweigh the price increases due to taxes.” I have done research on taxation for several clients—while it is true that no consumer ever wants to pay more taxes, it is equally true that the collection of tax is unlikely to change their habits, with the exception (possibly) of bigger ticket purchases like jewelry or home furnishings.

The business complexities around collecting sales taxes around the country will increase. The impact will likely be muted for larger companies such as Amazon which is already collecting sales tax. Small business owners are the group that may be most affected, and this was not lost on the court. South Dakota’s law provided provisions to protect small business owners, but whether other states will write similar legislation is not yet clear.  Ultimately, this ruling will only serve to further fuel the growth of Amazon and other large on-line retailers at the expense of smaller companies who will have difficulties in complying with the labyrinth of complicated national, state and local tax laws.  Jim Okamura went on further to hypothesize that the ruling could “provide additional growth for online marketplaces where tax compliance is a built-in feature.” The growth of online marketplaces has been dramatic around the world. Shifts in legal compliance could further provide incentive to small businesses to sell more via these channels than direct to consumer.

Ultimately, the additional price to consumers was a small, but significant loophole. Consumers have been fortunate to exploit it for the past 26 years, but now all channels will likely be forced to play by the same rules. Online players must continue to create a seamless experience and convenience. They can no longer depend on attracting site traffic due to tax avoidance and must instead distinguish themselves by becoming the best within their category.

Co-Authored by Neil Stern and Brad Koszuta for Forbes

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Amazon Is ‘Upping The Game’ With Brick And Mortar Locations

Amazon’s newest brick and mortar location opened this week in Chicago.

Amazon’s newest brick and mortar location in Chicago opened this week – a Campus Pick-Up point in the heart of the DePaul-Lincoln Park neighborhood.  In a neighborhood with several Amazon Lockers nearby, and a Whole Foods just up the street and Prime Now same day delivery availability, why invest in a fully staffed location, especially one of reported 2,800 sq ft?

Is it just Amazon incrementally ‘upping the game’ in terms of service, or is there potentially more to it?  The new location has several benefits above the established freestanding lockers:  free same-day pick-up on millions of items from the Amazon catalog (not just a small sub-set as in Prime Now), nearly unlimited capacity (you won’t get “locker full, choose another location”), packages held for 15 days, and the ability to package and drop off returns.

While holding packages for 15 days is incremental, expanding the number of same day items available is not.  Amazon can position itself as the go-to one-stop shop for all those semi-impulse and immediate need purchases that would entail a trip to one of the many grocery, general merchandise, big box or specialty retailers nearby.  With the student discount for Prime membership, it is building brand awareness and loyalty with the next generation of shoppers, but services will also resonate with the rest of the large, mainly upscale population in the neighborhood.  And with the size of the footprint one can’t help but wonder if they wouldn’t start stocking a limited number of items on-site once they get a handle on shopping patterns.

Improving e-commerce offerings won’t be the answer for area retailers.  They will need to improve their in-store experiences, provide unique items and offer services that Amazon cannot in order to continue to drive footsteps to the stores.  Otherwise, they will wind up being the second choice for customers.

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