For years, retailers complained that they had to compete on a tilted playing field against Internet retailers who did not charge sales tax. States trying to attract online businesses didn't press the issue, especially after Amazon promptly ended relationships with marketing affiliates in Colorado after the state threatened to collect sales taxes from e-tailers with a presence in the state. Amazon has reversed course, and will now collect local sales taxes. If you think other retailers, physical or virtual, would be celebrating, think again.
As Farhad Manjoo pointed out on Slate, Amazon has decided to forego a small price advantage for a larger value advantage. Instead of retreating to a few giant warehouses, Amazon plans to place lots of warehouses near major metropolitan areas. We can expect to see cheaper next-day, and even same-day delivery. If you think Amazon getting a sales-tax-break was a big advantage, think about how you can compete with someone who can take your order in the morning and deliver it in the afternoon. This is a huge threat to traditional retailers, but also to e-tailers outside of Amazon's partner network, who cannot take advantage of Amazon's logistics, and who often make a lot of money on rush shipping fees.
What can an e-tailer do to compete?
1. Be exempt from collecting sales taxes. If you're small enough, you may be exempt from collecting sales taxes, at least for now (the proposed Marketplace Fairness Act exempts companies under $500k in revenue, and aims to simplify sales tax collection -- we'll see what happens), so you may hold onto a price advantage.
2. Maintain or create differentiation. Maintain or create differentiation to make it harder for customers to switch to Amazon for faster/cheaper shipping. (Good example: Icebreaker.com).
3. Turn your products into subscriptions. Devise ways to turn your products into subscriptions so things arrive when needed, and getting something immediately is less important. (Good example: Manpacks.com).
4. Develop better relationships with your customers. If you develop better relationships with your customers, you can better anticipate what they might want and when they might want it, so you can get them to order in advance. This may require targeted discounts. For example, you can offer pre-order specials on upcoming products, or "guaranteed Christmas delivery", or other incentives. You may also want to give them mobile apps (you already have a mobile version of your online store, right?) so they can order at their convenience, with easy links to social networks so they can tell their friends and followers. You may even want to offer your own version of Amazon Prime, where users pay an annual fee for faster, cheaper shipping, almost like a Costco membership. You end up discounting more to your best customers, but your best customers have an extra incentive to buy from you.
5. Become an Amazon partner. You may choose to become an Amazon partner and outsource your logistics to them.
Regardless of your approach, you'll need to keep a close eye on prices from Amazon and other competitors, including shipping charges and shipping times. You may need to update your prices if you see unacceptable impact from Amazon. Use Price Monitoring Software to stay at the very top of your business and your market.
How do you think Amazon's latest plans will affect you? Reuben