The holiday season is typically a great sales period for online merchants, with total annual sales reaching close to $9 billion! So, online merchants should rejoice right? It may not be that easy.
Contrary to the traditional American idealism of the free, capitalistic society of the United States where companies and industries can revel in their colossal success…the inevitable is bound to happen: government intervention.
Let’s look at Black Friday, Cyber Monday, and Cyber Week in numbers so that we can get a better understanding of why government would want to storm in, raising a yellow flag.
According to studies conducted by Adobe, ChannelAdvisor, and Custora, 2014 Black Friday sales increased between 20.6% and 24% over 2013. Reuters reported that the sales increase was closer to 22% and was fostered by higher employment numbers and lower gas prices.
Reuters also explained that consumers “flocked to computers and smartphones to hunt bargains”. An IBM study also backed up the notion that consumers were using more electronic means to shop, reporting that online retailers’ Black Friday sales increased by 8% over 2013. In a survey conducted by the Consumer Electronics Association, 77% of consumers said that they turned to the Internet for their Black Friday shopping since the Web offers comparable pricing, free shipping, and the convenience of not having to stand in line for hours. The surge in 2014 Black Friday online shoppers even made renowned retailers such as Best Buy, Neiman Marcus, and Game Stop suffer website outages, weaker bandwidths, and lack of availability of products.
As if those numbers were not already alarming, that was only for Black Friday, and today is Cyber Monday. With Cyber Week commencing today, The National Retail Federation estimates that roughly 127 million people will shop online today. Although that number is down from last year’s 131 million online shoppers, a close track of online sales estimates that online retailers will rack in a whopping $2.057 billion in desktop sales TODAY; resulting in an 18.6% increase from 2013. With the increasing rate of mobile traffic and consumers being able to buy online via mobile devices, around another $0.4 billion will be made by online retailers today.
In total, the 2014 Cyber Week expects to see $9 billion in total sales. This would be GREAT news for online merchants, except for the fact that when government sees big money being made, they want to get a piece of the cake, too.
For example, if you currently own a local store you are required to charge sales tax to your local customers. However, if you have an online store, many of your out-of-state customers can enjoy the loophole of not having to pay tax, a privilege that will soon be coming to an end.
The Marketplace Fairness Act is a bill that has been passed by the Senate and is currently sitting in the House and it would require Internet retailers to also collect sales taxes. Top House representatives are arguing that the bill would crush e-commerce (mainly for smaller retailers) unless Congress grants states more authority to collect sales taxes on Internet purchases. Since it is highly unlikely that Congress would ever pass a national tax for online shopping, every online business would have to collect, remit, and file sales tax returns in every single state that they ship their products to. Although there may be exemptions for small businesses, it is unclear what qualifications you would have to meet in order to be exempted, and you would still have to track and report your sales, in document form, in case of an audit.
Since many consumers are turning to online shopping for the perks of lower prices and no sales tax, the implementation of The Marketplace Fairness Act could weaken your business’ online traffic.
The 2014 Cyber Week could possibly be the very last without sales taxes, as the Federal government and multiple state governments are seeking ways to add revenue and reduce state deficits.