Amazon Takes On California

New York Times
By Matt Richtel and Verne G. Kopytoff
Published: July 13, 2011

Amazon has an ambitious and far-reaching new agenda: it wants to rewrite tax policy for the Internet era.

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Amazon Takes On California

Shed No Tears For Wal-Mart In The Final Battle of Goliath vs Goliath

Wall Stree Journal
By Russ Britt

The movement to force Internet retailers to collect sales tax is designed to level the playing field between so-called Main Street shops and online rivals like Amazon.com Inc.

The movement, however, could have the unintended effect of paving the way for retail behemoth Wal-Mart Stores Inc. to further consolidate its market power into the online world, if price comparisons are any indication.

MarketWatch conducted an informal shopping expedition at the websites of Wal-Mart (WMT) , its chief brick-and-mortar rival Target Corp. (TGT) and Amazon (AMZN) . The findings show that despite having to charge taxes, Wal-Mart still holds a slight edge over Amazon in price, and a much greater advantage over Target.

MarketWatch priced five identical items at the three outlets -- a videogame, a best-selling novel, a case of golf balls, an iPod Touch and a 32-inch flat-panel television. With taxes and shipping included, the final total for the Wal-Mart shopping trip was $672.15 compared with $672.77 for Amazon, a difference of 62 cents. Target's total was $732.86.

Yet Wal-Mart -- accused over the years of decimating mom-and-pop stores in numerous small towns -- has joined with other retailers to lobby for mandatory sales taxes on online transactions. Company officials say that they've joined with other brick-and-mortar companies to help them level the playing field.

"Main Street businesses and retailers are losing out as online-only retailers are gaming the system and creating an unfair playing field," Wal-Mart spokesman Daniel Morales said in an e-mail. "This is bad public policy. Tax policies should not be any different for online-only retailers than those for retailers that operate brick and mortar operations."

But the ultimate effect of an online sales tax is that Wal-Mart may be able to relegate Amazon to a pricing category that is closer to Target and other retailers, while putting some distance between itself and everyone else.

Amazon has fought against online taxes in the states where they're currently levied, including California, New York, North Carolina, Colorado, Illinois, Rhode Island and Connecticut. This week, Amazon said it would seek a referendum in California to have voters determine whether it should charge the 7.25% sales tax in that state, the highest of any in the nation.

"This is a referendum on jobs and investment in California," Paul Misener, Amazon's vice president of public policy, said in an e-mailed statement. "We support this referendum against the recent sales tax legislation because, with unemployment at well over 11%, Californians deserve a voice and a choice about jobs, investment and the state's economic future."

California's law, which went into effect July 1, allows the charging of taxes through an online retailer's affiliates that refer customers to Amazon and are based in the state. As a result, Amazon has cut ties with 10,000 California affiliates while it seeks to resolve the sales tax issue.

The MarketWatch survey doesn't prove that Wal-Mart will beat Amazon on all pricing; but it does indicate that it can compete with the online retailer. The study chose items that were available at all three online outlets of Amazon, Wal-Mart and Target in the same exact model and/or quantity.

A more detailed study from William Blair retail analyst Mark Miller published earlier this week found that Amazon averaged an 11% price discount compared to its brick-and-mortar rivals. The study looked at a total of 2,400 items, or 100 items for each of the 24 retailers included in the survey.

While items such as shaving cream, toothpaste and laundry detergent are sold at all three, the exact same variations on a brand usually are not available in the same quantities at all three. Target may offer, for example, a particular variation on Colgate toothpaste only in packages of two tubes, while it might be six tubes at Wal-Mart and only one at Amazon.

But Wal-Mart seems to consistently beat competitors in online sales by keeping its shipping costs low. And those low shipping costs come in handy in several cases. One interesting find is that Amazon may fall well short of Wal-Mart in the low pricing department on one of its cornerstone businesses -- book sales.

Breaking out the hardcover best-seller, "Smokin' Seventeen" -- one of the items on the MarketWatch shopping list -- shows that Amazon charges more than $2 more to get that item to consumers than does Wal-Mart.

So the final cost to consumers is $18.50 from Wal-Mart and $19.20 from Amazon. For the record, Wal-Mart charges one penny less than Amazon for the base price of the book, $15.20 vs. $15.21. And the total cost to buy the book at Target, including shipping and taxes, is $22.17.

Danny Diaz is spokesman for the Alliance for Main Street Fairness, a group that seeks to force online retailers to charge sales taxes. He says regardless of what Wal-Mart is charging, a raft of retailers are at a disadvantage when trying to compete with Amazon.

"Any business should be required to compete on the price of the product. They shouldn't have to compete on whether they collect the sales tax," Diaz said. "Ultimately, this is an issue about fairness."

Most Retailers Doomed In Market-Share Contest With Amazon

By Andria Cheng
MarketWatch

From Target Corp. and Kohl’s Corp. to Best Buy Co. and Bed, Bath & Beyond Inc., retailers are facing increased risk of losing share to online retail giant Amazon.com Inc., a study showed Monday.

William Blair & Co. analyst Mark Miller picked a total of 2,400 items -- 100 items for each of the 24 retailers studied, 22 of which had physical stores -- and compared merchandise overlap and relative pricing against Amazon.

On average, Amazon was found to have an 11% price discount advantage on each item. The discount increased with the number of items purchased because of the savings earned on shipping, the survey showed, adding that Amazon has a bigger pricing advantage on items over $20.

Nearly half of physical store items are available on Amazon with third-party sellers representing more than 60% of the online retailer’s offerings.

Despite increased attempts by states to collect online sales taxes, the study showed Amazon will still come out ahead. For instance, while Amazon is priced lower on 56% of items including tax savings, it’s still priced lower on 48% of items when tax savings benefits are excluded, the report said.

Overall, the study showed retailers with above-average risk of share loss against Amazon include electronics retailers Hhgregg, Best Buy, home-furnishings chain Bed, Bath & Beyond Inc., discounter Target Corp., sporting goods retailer Dick’s Sporting Goods, mid-priced department store operator Kohl’s Corp. and pet medicine seller PetMed Express Inc.

The world’s largest retailer Wal-Mart Stores Inc. is placed at medium risk because it doesn’t overlap with Amazon in the perishables department, and the online retailer tends to be less competitive on lower-ticket items, the study found.

But the study also found Wal-Mart isn’t considered at low risk against Amazon because of the relative inconvenience of shopping at a huge supercenter store versus clicking away online.

Miller cut his ratings on Hhgregg and pet-medicine seller PetMed Express, sending shares of Hhgregg lower by 4.6%. PetMed dropped 3.9%. Best Buy was down 1.5%. Target and Bed, Bath & Beyond each declined 1.1%. See related retail stocks story.

In a closer look at Hhgregg Inc., for instance, 74% of the retailer’s 100 items selected are sold on Amazon.com, which has the second-highest assortment overlap among Miller’s coverage list. On those identical items, average per-item savings at Amazon.com were more than $80, the highest within his coverage, which represents more than a 12% per-item savings relative to the comparable in-store price, he said.

“The price-comparison risk for Hhgregg is a particularly high concern because of the high average ticket, and 84% of the overlapping items are available at lower prices,” the analyst said.

He said while the company’s aggressive approach in matching Amazon’s prices upon consumer request could slow the dollar share loss, it could also hurt its profit margins over time as price-check apps and mobile e-commerce become more prevalent, the analyst noted.

Hhgregg’s larger rival, Best Buy, has 69% of product overlapping with Amazon, which has a roughly 12% price discount advantage on identical items. Kohl’s and Bed, Bath & Beyond each has 60% and 55% of product overlap with Amazon having per-item price discount advantage of about 20% each. See related story on Best Buy’s most recent earnings report

Target has a 45% product overlapping with an 11% price gap against Amazon. Wal-Mart has a 28% assortment overlapping with Amazon priced 5.4% lower on those identical items, the report said.

Among retailers facing below-average risk of share loss against Amazon include Blue Nile, Whole Foods, Family Dollar Stores Inc., Dollar General Corp., CVS Caremark Corp., Walgreens and TJX Cos., the report said.

The study also found that retailers themselves have “divergent” online commerce strategies and are often “playing defense” with pricing on their websites often not price competitive with their own stores because of high shipping costs.

For instance, about 72% of items from those with physical stores are available on the companies’ websites with their online per-item pricing about 14% higher than their store pricing after factoring in shipping and other costs, the data showed.

Amazon Seeks Overturn of California Tax Measure

Wall Street Journal
By Stu Woo

Amazon.com Inc. has intensified its fight against states over sales-tax collection.

The Seattle-based retailer filed a petition to start the process of getting a measure on the California ballot to ask voters to repeal a recently passed state law that requires online retailers to collect sales taxes. The company has until late September to gather and submit 504,760 signatures to qualify the measure.

If Amazon can do so, the measure will be placed on the ballot for the next statewide election, which is scheduled for Feb. 7, 2012.

State officials confirmed that they received Amazon's petition, filed on Friday.

"This is a referendum on jobs and investment in California," said Paul Misener, Amazon's vice president of public policy, in a statement. "At a time when businesses are leaving California, it is important to enact policies that attract and encourage business, not drive it away. Amazon looks forward to working again with tens of thousands of small business affiliates in California that were harmed by the new law's effect on hundreds of out-of-state retailers."

California last month became at least the ninth state to pass a law aimed at forcing online retailers such as Amazon to collect sales taxes. Arkansas, Connecticut and Illinois also enacted such legislation this year.

State lawmakers say they passed the laws to help close budget shortfalls and to help small businesses and major brick-and-mortar retailers, which complain that Amazon's tax-free sales give the online retailer an unfair sales advantage.

Both Democratic and Republican legislators support the laws because they technically aren't tax increases. Every state that has a sales tax also has what is known as a use tax. It requires individuals and businesses to report taxes owed on purchases from out-of-state retailers every year. Individuals are typically supposed to do this on their income-tax filings, but few do.

Most of the online sales-tax-collection laws haven't worked for most of these states, where Amazon continues to make tax-free sales. Most of the laws, including California's, require online retailers to collect state and local sales taxes if they have online affiliates in the state. An online affiliate is a website, such as a blog, that receives a commission for referring traffic to Amazon and other online stores.

Amazon has responded to such legislation by cutting ties with affiliates in most of those states, including California. Affiliates have lobbied against the legislation.

The California law is more far-reaching than the laws the other states passed. One component of the legislation requires online retailers to collect sales taxes in the state if they have subsidiaries developing products for their retail operations. Amazon operates a California-based subsidiary that develops its Kindle electronic book-reader and its digital-music store.

A group supported by big-box retailers derided Amazon's attempt to repeal the California law. "Amazon.com's actions prove that the online-only retailer will say and do anything to maintain an unfair competitive advantage over brick-and-mortar businesses in California," said Danny Diaz, a spokesman for the Alliance for Main Street Fairness, in a statement. The organization is backed by Wal-Mart Stores Inc., Target Corp. and other large chains.

An Amazon spokeswoman didn't respond to requests for additional comment on the California measure.

It is unclear whether Amazon is working with any political groups or other companies to pass the ballot measure. It is also unclear whether the company will fund the signature-gathering process—which typically costs $2 to $3 per signature—or the campaign to pass the measure should it qualify for the ballot.