Thursday, April 23, 2009

Online commerce and sales taxes

Recently I needed a new pair of running shoes. I talked to someone who knows way more about the topic than I do and scribbled down her instructions of what to buy.

I have a few choices. There is a big sports supply store down the street, and there are various running stores within a couple of miles of my house.

Since it was crappy outside (it still is, but we have high hopes for this weekend here in Chicago) I did something else - went online to Zappos. Zappos is the famous online shoe store that is supposed to have great prices, service, etc...

I was able to pick out pretty much any type of shoe - they had the specific model I was looking for, along with online reviews of the shoe comparing it to its predecessors (and successors). I have wide feet and wanted a certain size, width and color, and no problem finding it.

The price was good and there was free shipping and no sales taxes. In Chicago, the retail sales tax rate is 10.25%, so that is a relatively big deal, it was about $12 savings relative to purchasing it in a store.

What stunned me, however, was the fact that the shoes arrived THE NEXT DAY. I don't know if they have some sort of warehouse here in Chicago or how it happened, but I was totally amazed to find the box at the front desk of my condominium the very next morning. FOR FREE.

I think that high sales taxes and the ease and selection of online commerce, combined with reasonable and fast shipping, is severely going to crimp retail here in the United States. I know that people have been talking about this for years but in an age of frugality and very high local sales taxes the allure of online shopping has increased significantly.

The search engines within these sites have also been improved. It is much easier to find exactly what you want, and many / most items have a lot of reviews. I figure if it is 2 or 3 reviews I am suspicious that they might have been "planted" by the online firm but when you have 40-50 reviews that are very detailed, saying the pros and cons of what you are looking at with some clarity and consistency, you can have more confidence that what you are buying is right for you. Here is the most fun search engine selector, by the way.

Another subtle thing about shopping online is that you get used to buying more and more items online. For example, if you go to Amazon, you can get pretty much anything from there. I recently bought a coffeemaker and coffee from there, something I would have thought of as ridiculous a few years ago (can't you just go to a store?) but the price was right and the reviews let me know I was getting exactly what I was looking for. Since Amazon already has my info, I didn't feel like I was giving my personal info out to another random web retailer that might not be there in five minutes. I also recently bought a big-screen TV from Amazon - free shipping, no taxes, and someone even came to set it up and take away the empty box ("white glove service" they called it) and it was a great experience, way better than going to now defunct Circuit City or Best Buy.

I realize that the "buzz" on online commerce has died down and everyone has moved on to the next faddish type item. However, it is important to note that the most significant impact of items like this happen over time and not always when it makes headlines.

The confluence of 1) high sales taxes 2) reasonable and fast shipping 3) vast selection 4) solid reviews and search functionality 5) comfort with the system 6) reasonable confidence in information security 7) ability to purchase setup and have them deliver heavier items to your door is going to really put a hit on high-cost and highly taxed retail.

Cross posted at Chicago Boyz


Anonymous said...

you will owe Use Tax - for purchases over the internet...

Dan from Madison said...

Eventually the feds and everyone else will catch up with the no tax thing, cash in now. Those insane sales taxes must be like manna from above for the counties ringing Cook and in Southern Wisco.

Dan from Madison said...

By the way, my wife uses Zappo's all the time. It is the best. You can order whatever you want, and if they don't fit or you don't like them, just send them back and you get credit no questions asked. You do need to eat the freight back, but small price to pay vs. gas/time.

Dan from Madison said...

I think I may have been incorrect in saying that we had to eat the return freight, here is a note I received from Zappos (yea, they got my name wrong, but no biggie):

Hi John,

My name is William and I am contacting you from the Resource Desk here at

I wanted to contact you regarding a posting of yours I saw on a blog today. You had stated that your wife shopped at Zappos and that you guys enjoyed the service. One thing that caught my eye, however, when you stated that you had to pay for return shipping. I just wanted to send you a little note letting you know that you should never have to pay for return shipping. In the future, if you need to return any purchases please feel free to call us and we will provide you with a pre-paid return label.

We are constantly striving to improve our service. If there is anything more we can do for you or if we could improve your experience, please do not hesitate to let us know. We are always here for you - 24 hours a day, 7 days a week, 365 days a year. We are a service company that just happens to sell... shoes, bags, clothing and accessories.