Leveling the Playing Field




Did we just discover Amazon.com’s Achilles heel?

The answer may be yes, and it may stem from the fact that many state governments have had such a tough time balancing their budgets that they are looking under every rock for more money.

As we documented in our November cover story, Amazon.com could be the 800-pound gorilla that destroys Main Street with a business strategy that emphasizes low prices, huge selection and quick delivery of merchandise. In fact, a study was issued last month that put PetSmart as the number-two retailer in the country—behind just Bed, Bath & Beyond—most vulnerable to Amazon’s business model.

Trust me, Amazon has a lot of retailers worried about the future, and for good reason. The online seller has done a splendid job of convincing consumers that they will save lots of money and still get their products quickly by using its site. Also, Amazon is teaming up with more suppliers every day to offer a greater selection of merchandise, and it has dramatically improved its delivery systems. I am told that Amazon has at least a dozen buyers working just on the pet category right now. 

Oh, did I mention saving money? Part of Amazon’s successful strategy has always been that it does not charge sales tax in most of the country. That is an immediate savings of as much as nine percent to consumers in some high-tax states like New Jersey.

But that little benefit seems to be going away. As Amazon opens more distribution centers across the country, and as state legislatures look for more funds to balance budgets, the company is now being forced to charge sales taxes in more states. In fact, according to a CNBC report, Amazon will have to charge sales tax in more than half of the states by the end of this year. That, by itself, will make a huge difference with consumers.

Also, it appears that Amazon’s overall pricing structure may not be as different as once thought. New studies show that most posted prices at Amazon are not much better than what is offered at traditional retailers. Amazon, or more likely its vendors, may be falling prey to the age-old problem of greed—sales are good, let’s raise prices.

So now traditional retailers have to go on the offensive by pounding it into consumers’ heads that your price points are not much different than Amazon’s and you offer something the digital site does not—great service in the aisles.

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