Back in 2008, when I first read about states wanting to tax online sales that were shipped into their state, I predicted that they would eventually win and that they would not stop fighting until they won. In my mind, the reason for this was simple; States were losing billions in tax revenue to online eCommerce. According to a 2009 report by the University of Tennessee, each year, states were losing $23 billion in state and local revenue to e-commerce sales and that this number would continue to increase annually. This was never about creating or keeping local jobs or balancing the playing field between brick and mortar and eCommerce stores; this was about maintaining State coffers so that they didn’t have to increase other taxes.
As an example, in 2016 according to the U.S. Census Bureau, 84.2% of South Dakota’s total tax revenue came from Sales and gross receipts. Nearby states total sales tax revenues ranged from 40.2% to 46.2%. Clearly many states, not all but many, rely on Sales Tax to keep their states running. In 2017 South Dakota increased Sales Tax by 0.5 percent, it was anticipated that this change would increase sales tax revenue by 16.9 percent, but in fact, sales tax revenues have gone up only 9.4 percent. Clearly, South Dakota sees this as being a direct result of people moving from in-state brick and mortar purchases to online purchases. I think that the Government of South Dakota realizes that the Supreme Court ruling that allows them to tax sales delivered into their state will not save brick and mortar jobs in their state; it will, however, allow them to maintain and grow their sales tax revenue base.
This new tax burden will also not destroy online sales as small businesses were exempt for the most part, and the level of automation afforded to larger businesses due to e-commerce automation already gives them a cost advantage over brick and mortar. I have had customers tell me that they save $52.00 per order. On 1,200 0rders per month that works out to a savings of about $750,000 per year. Another customer said that, due to e-commerce automation, they were able to handle 2,400 orders per day with a single employee. So, for these companies, a tax service to automate the collection of sales taxes based on the customer’s ship-to address would be a small cost by comparison to the savings they have over a brick and mortar operation. In conclusion;
· Online sales are not going away.
· The need of many states for sales tax revenue to balance their budgets is not going away. However,
· Brick and Mortar businesses are diminishing and will likely continue to diminish.
Therefore, in my opinion, States that rely heavily on Sales Tax for state revenue have little or no choice but to fight for the ability to add sales tax to all sales made within their jurisdiction. However, this brings to the fore a bigger question. What happens when eCommerce companies set up shop outside of the U.S.? Does a State have the right to force a non-U.S. company to collect taxes for sales delivered to their state? This will be the next big legal battle.
In an issue of McLean’s, one of Canada’s leading weekly news magazines, there is an article titled “Thanks for the tip, I’ll get it on Amazon”. The writer, Brian Bethune, talks about the struggles that independent, brick-and-mortar book stores are having competing with online companies such as Amazon. And while, according to this article, this issue is more acute in the book industry, it is an issue that runs across multiple industries. The article talks about a practice of “Showrooming”, which is when a potential buyer goes to a book store, or any store for that matter, and gets information about a book from the experienced staff, and then goes and buys it much cheaper online.
While there may be some unique issues surrounding the book industry, “showrooming” is not unique to that industry. Nor is the reverse - something we all know and love called “browsing”. In a study I saw last year, 42% of all in-store purchases started with people browsing the internet to research a product and then going to a brick-and-mortar store to make their purchase. The reason for the trip to the store is that we humans are, for the most part, still tactile and want to see and touch something before we buy it. The more expensive the item the more that comes into play. As long as the price difference between brick-and-mortar is reasonable, many people still want to see, touch and have human interaction with someone to gain their firsthand expertise of the products they sell.
The second half of that last sentence is the heart of this blog “…human interaction with someone to gain their firsthand expertise of the products they sell.” Are your sales people and is your web site showing you as an expert in your field? One of the first sales I made after joining Iciniti was to a company that sold products to corner stores. As we closed the deal, the CEO commented “Now I can go back to the office and fire all of the sales staff.” To which I commented “Yes…and next year you can declare bankruptcy.” To say that the CEO was shocked by my comment is an understatement, however, I went on to explain that today he didn’t really have any sales staff; what he had was highly paid order takers. His new online store was going to take care of the order taking, and now his sales staff could do what they were really meant to do… sell product. In his industry, that meant gaining more shelf space for his products, introducing new products to the mix and finding new customers. Sales will always be about relationships and “expert” sales staff are key to that, but as experts, they have to know their product better than the customer, and they need to be able to guide the customer to a buying decision. This builds trust and binds your customers to you. My advice was to get rid of the “order takers” and develop a true sales staff combined with the automated order entry of their new web store, which he did. In an industry that typically sees 2% to 4% growth on a good year, that company grew 32% the next year.
So how does that pertain to online shopping? Your website is where customers come to gain insight into your expertise about your products. The better you are at creating an online trust relationship between your company and your customer, the more successful you will be; provided, of course, your products are reasonably priced compared to your competition. Study after study has shown that your products and services don’t have to be cheaper, there just has to be a perceived value in the knowledge your website and staff put forward.
I have said for years that it was critical for a company’s website to not only be easy to navigate and properly match their brick-and-mortar brand, but to also show that they are experts in their field. So how do you do that? BLOGs are an excellent tool. BLOGs are one of the easiest ways for your company to show their leadership in an industry. Showing your leadership and knowledge is the first step in creating a trust relationship between you and your customers, and this is true for both business-to-business (B2B) and business-to-consumer (B2C) interactions. Remember that 42% of all in-store sales start with online research of you, your company and your products. BLOGS allow you and your staff to show both product and industry expertise. This is why it is so critical that your web platform unify the web store and all of the other content on the site such as blogs, forums, news, reviews etc. All of these bits of content go towards showing potential customers that you have industry expertise. Your blogs show your industry knowledge, your forums show your interaction and caring towards customer specific issues, news shows that the world is watching you and reviews show what other customers think about your products and services. And of course, because search engines love current, relevant content, having up-to-date blogs, forums, news and reviews get you a better organic ranking in online searches. Based on industry studies, if you have done a good job here, a good number of people will buy. The percentage varies depending on the price and complexity of the product. Books have a higher number of people purchasing online, while backhoes are more likely to be bought on premise.
This leads to part two. Keeping in mind that 42% of the customers that walk into your brick-and-mortar store will have researched online the product that they came to buy. It is therefore imperative that your sales staff have expertise that extends and enhances the information on the website. Nothing drives me crazier than researching a product online, then going to the store I decide to buy it from and talking to a salesperson that knows less about the product than I do. That is where I start “showrooming”. I show up at my favorite electronic or music store and first try to find a salesperson. If I manage to do that, I want to know their experience with the product I am about to purchase. Often times I have been told “You can just go to the website and look that up.” Well… if I am going to do that, why am I going to purchase it from you and help you get commission? The other thing it tells me is that, as a company, you have decided to compete solely on price - service is clearly not in the equation. So now… your website better be good because you are now forcing me to create a relationship with a virtual person; your website. Your blogs, forums, news, online chat tool and product reviews become your virtual sales staff. If you can’t create a relationship with me using the web tools that you have available to you, the price becomes the only differentiator… and that is a terrible place to be.
Provide your customers with tools that allow them to easily create and manage online relationships by incorporating blogs, forums, news, social media, product reviews and rankings, and cross selling tools such as related items and people who bought this also bought… Of course, you also need to be able to run all of this on virtually any mobile device.
Today, whether your customers are “showrooming” or “browsing” your website must have the tools you need for creating and managing the online relationships so important to your business.
I have been selling integrated eCommerce into the Sage 300 channel for about 17 years now. Moreover, through all that time I truly believed that integration was the most important aspect of eCommerce and that without deep integration you only had part of a solution, not a whole solution. Both companies I have worked for in the eCommerce space were small, with between 12 and 55 employees. They both had very deep integration to their targeted Sage ERPs, and they both had decent web store features. However, they both lacked the market size and staff to compete with the big guys; Shopify, Magento and Woocommerce.
Lately, watching the rise of Shopify and Woocommerce, I have been having a bit of a crisis of faith. Is Integration really all that important? Obviously, it is important, and for many reasons. But, is it the most important aspect of an eCommerce offering. I am beginning to think not. I am beginning to believe that it is the Customer Experience and the feature set a site delivers that drives sales, not integration. I don’t think your customers, for the most part, care about integration. They care about excellent user experience, features that allow them to get in, find what they want and check out quickly and accurately. They care about things like on-time delivery, loyalty points, and great payment options. I doubt that they think for one second “I hope this site is integrated.”
The Gartner Group says that forty percent of B2B customers want more integration. In a 2016 PayPal survey, they found that that only seventeen percent of Canadian companies have web stores, and only about ten percent of those have integrated web stores. Using these numbers, it means that only about two percent of Canadian companies have integrated web stores and only forty percent of the B2B buyers at those stores want more integration. Which means that sixty percent are satisfied with what they have and seeing as, for most, that means that they have no integration; then to me, it seems obvious that these customers are looking for something else from a web store…something that they deem more important than integration.
As I began to question my beliefs, I looked more closely at what was happening in the industry. Shopify Magento and Woocommerce own the industry. The companies I had worked for had about 200 customers each. According to BuiltWith, there are 1,345,361 customers using Shopify, Magento has 654,802, and as of February 2018, 2,341,106 sites use Woocommerce. Most of these sites would be non-integrated or partially integrated. So, what is the appeal? I believe that the appeal is the huge development communities that have sprung up around these platforms, Communities that deliver every feature imaginable. That, plus the sheer size of thei client bases, which gives them the ability to distill market trends from hundreds of thousands, even millions, of clients not just one or two hundred. This market analysis gives their Product Management teams the data they need to know what users want, and they already have the development community to ensure it gets built. When you have a team of 4 to 15 developers; you cannot possibly compete with a company like Magento that claims 300,000 certified developers worldwide. It simply isn’t possible.
So, what is the solution? The small deeply integrated web stores serve a purpose; they make it easier for the store owner to manage orders and they deliver some excellent customer portal features to end-users. The ability to have orders flow into the accounting system also make it easier to grow the business without adding tons of staff. The question is; does that drive sales? Or, more importantly, does that drive more sales than a feature-rich eCommerce site with hundreds of add-ons that helps create an excellent user experience? In my opinion, it is the latter that is critical. Customers don’t buy because they can see their history, they buy because the site is easy to navigate and has the features they want and need. However, it would be nice to be able to achieve both goals - a site that is easy for the site owner to manage without re-keying and one that has features that make it easy for registered users to self-manage their account and quickly and easily place orders based on order history. All while using an industry leading, feature-rich web store.
The question then becomes; is that a feasible reality? Can a store owner have a solution with good two-way integration to their ERP and a web store with a vast array of features that create an excellent user experience for their customers? The answer is yes. Today, several companies have created products that offer integration with most major accounting packages and ERPs as well as to Shopify, Magento, and other popular eCommerce web stores. Therefore, adding one of these integration Plug-ins to a Shopify, Magento or Woocommerce installation, gives you everything you need to run a modern, integrated eCommerce business; one that reduces costs and allows you to grow due to eliminated re-keying of orders but that has a modern ever-advancing web store to help increase sales. Will the integration be as good as the integration built into a purpose-built, integrated eCommerce solution; likely not. Will the customer experience be better with the likes of Shopify, WooCommerce or Magento? In my experience, most definitely. Does the benefit of excellent customer experience outweigh the benefits of a purpose-built, integrated web store with limited development capabilities? I believe that it does and it seems that several million store owners agree.