Thinking Entrepreneur

An owner’s dispatches from the front lines.

Lots of people enjoy saving money by shopping online. The prices are often lower, and in many cases there is no sales tax and little or no shipping charge. But while free market forces prevail, there are growing problems with the after-effects of this market shift to Internet sales.

It is becoming commonplace for customers to go into a store, examine a product, get educated by a sales clerk, and go home to order the product online. Instead of feeling bad for taking the time of someone who is trying to make a living, many people feel righteous about it. They say things like, “I’m not going to get ripped off.” Or they simply don’t think about it at all. I have a friend who owns a shoe store, and he tells me that people come in all of the time, try on some shoes, spend half an hour with a member of the sales staff, and when they have made a choice they announce that they are going to order the shoes online — as if it is something to boast about. Boasting to your friends is one thing; boasting to someone who has just spent time trying to help you is rude at best.

Wasting a sales representative’s time with no intention of buying is a problem that goes back hundreds or thousands of years. I mentioned this to my scholarly friend, Robert — I have only one scholarly friend; if you have two, they argue all the time — and he told me that this is covered in the Talmud. I did a little research and found that, according to the book “Values, Prosperity, and the Talmud: Business Lessons from the Ancient Rabbis,” by Larry Kahaner: “One of the most important rules prohibits customers from showing interest in a product if they have no intention of buying. The practical aspect was that it wasted the sellers time when he could have been spending it with a customer who was truly in the market.”

O.K. I understand that this appeal to guilt — Jewish guilt, Catholic guilt, any brand — is not going to convince a lot of people to behave differently. Many will simply say it’s not their problem, even though they would not like people visiting them on the job and wasting their time. But it is their problem, or it will be.

What happens if your local retail stores become a showroom for online stores to such an extent that it forces them out of business? Are you perfectly happy not touching and trying out products? It has already happened with the closing of hundreds of Borders book stores. This is not a level playing field — and I say this as someone who has both retail outlets and substantial online sales. And it’s not just the retailers that get hurt. Think of all the sales tax that those stores used to generate.

Zappos does about $1 billion in sales every year. If Chicago represents 2 percent of the company’s business, that would be $20 million in annual sales. That represents about $2 million dollars of sales tax that the city no longer gets — and no longer gets to use to pay for police, firefighters, teachers and street repairs (with a few dollars left over for graft and corruption, of course). And Zappos is only one company. How much more is being lost on sales by Amazon (which owns Zappos) and all of the other online retailers?

The loss of sales tax, as well as the loss of the real estate and payroll taxes that those closed stores used to pay, is damaging your city and state. This is a zero-sum game. You may think that if a local store can’t compete with Zappos or Amazon, that’s the store’s problem. And you may be right. But why do the rules favor Zappos and Amazon? Not forcing them to collect sales tax has given them an unfair advantage that ultimately will force all of us to pay higher taxes to local governments.

Right now, the problem is being masked by the fact that we are coming out of a recession (I think! I hope!). There is an assumption that this is the main reason sales tax revenue is off. But I would bet that there is more revenue being lost from the Internet sales tax loophole than from the soft economy. This is a simple problem with no simple solution. But I would like to offer some insight into the beat-the-retailer mentality.

Saving money online can be a pleasure. But these local stores employ your friends and neighbors, spend millions of dollars in your community, and are hardly taking advantage of anyone. Have you ever seen the bottom lines of most large retailers? Five or 6 percent is probably about the average. And the small local store? I laugh when people tell me what a “gold mine” a particular store must be. I always ask, “Are you the store’s accountant?” I talk to small-business groups all of the time. Whether it is the local frame shop, furniture store, luggage store, florist, shoe store, bicycle shop, or eyeglass store, many are struggling. If they are doing well, they are not doing that well. Most stores are not ripping people off. They are trying to make a living, give service, support employees and pay taxes — and they are getting challenged by large companies that can buy cheaper but don’t necessarily provide better value.

Here is the bottom line: The sales tax loophole is going to have to be fixed, whether you like it or not. The cities need the revenue. And people will continue to shop at stores with no intention of buying, whether the store owners like it or not. Perhaps some people will start to think twice about it. At least, they don’t need to rub it in the face of the store staff. It’s nothing to brag about, really.

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=de83e825cd58c363eac20ec7345750eb