15 Minutes With:: Dean Miller, CEO Lenbrook America
TI: What are your thoughts about e-tailers and the Internet? Can the specialty dealer compete with them?
DM: Ah yes, the 800-pound gorilla. CE sales via the Internet have increased exponentially over the past five years.
According to the CEA, total sales of CE products in the United States in 2012 just surpassed $200 billion (wholesale value or dealer cost); a new record. Of this $200 billion total, sales via the Internet comprise approximately 25 percent of the total, or somewhere in the vicinity of $50 billion. Conversely, 75 percent ($150B) of total CE sales are not via the Internet. During the holiday selling season, the CEA states that total U.S. sales of CE products via the Internet approached 40 percent of the total. The Internet is indeed a massive logistics marketplace and distribution system whereby people transact business and purchase products.
At Lenbrook, we believe that the product strategy drives the distribution strategy. In this regard, we have certain products within our brand platforms that are appropriate for distribution via the Internet. However, we approach this with tremendous control whereby we authorize an extremely small number of our dealers to sell certain specific products on the Internet.
The pervasive concern of the specialty dealer (or any independent/non-Internet dealer in just about any business) is the sales tax issue. Currently, under federal law, which largely predates the Internet, online retailers are required to collect sales tax only if they have a physical presence in the customer’s state. As such, the sales tax differential can represent an economic pricing advantage ranging anywhere from six percent to 11.75 percent, depending upon the state. For bigger ticket items, this can be quite substantial.
Recognizing this disparity, not to mention the state governmental revenue opportunity, there is currently a bill before Congress called the Marketplace Fairness Act of 2013 that is intended to address this. The bill would force online retailers to collect sales tax. Most see this as “the great equalizer.”
In the most recent Senate vote on the budget for 2014, a bipartisan majority of 75 senators approved an amendment to support sales tax collections on Internet purchases. An identical House bill also has bipartisan support.
In fact, the New York Court of Appeals recently ruled that the state can collect sales tax from out-of-state retailers, rejecting claims by Amazon.com and Overstock.com that the tax law violates the U.S. Constitution’s Commerce Clause.
Let’s face it: It’s a huge amount of money and Uncle Sam needs it. Interestingly, Amazon.com is in favor and supports passage of the Marketplace Fairness Act.
Aside from all of this, there is always going to be some level of activity by nefarious, unauthorized Internet sites and counterfeiters looking to make a fast buck. At Lenbrook, we will continue to vigorously fight against this to protect our distribution supply chain and to protect our brands.
No one said this was going to be easy.