Yes, Amazon is adding on sales tax for its California shoppers, which is what non-Internet retailers in the state had been lobbying for and which is expected to bring in lots of tax revenue. But there's another side to this development. Amazon is building huge distribution warehouses outside of Los Angeles and San Francisco - much closer than the facilities that are now used. And Amazon plans to use those warehouses to provide faster delivery - they want to cut shipping times by as much as a day. From this week's Business Update
Steve Julian: Are they shooting for same-day service?
Mark Lacter: They're trying it out in San Francisco, Chicago, New York, Las Vegas, and several other cities. Amazon is able to do same-day delivery in cities that are close to fulfillment centers. Now, same-day delivery is significantly more expensive (it's $9 and up per delivery, so that's going to turn off some shoppers), and in some locations you need to order by 7 in the morning. In others (Southern California, for example), it's not being offered - at least for now - because of distances and, of course, traffic. So, this is still very much a work in progress.
Julian: Still, brick and mortar business owners can't be very comfortable now...
Lacter: Even a nominal reduction in delivery times would be a killer for them because, let's face it, immediacy is one of the few remaining advantages they bring to the table. That, and being able to examine a product or try it on. Of course, there's a risk for Amazon, as well. Setting up these distribution centers is expensive - and yet, the company can't make up those costs by jacking up prices for shipping. As it is, profit margins tend to be thin. So, the trick for Amazon is how to make money and still deliver the product as cheaply and as quickly as possible. And for the offline retailers, it's figuring out how to keep people coming into the stores.
The FT's Matthew Garrahan writes about his own Amazon moment of truth:
California's fiscal struggles mean it is in desperate need of new revenue so the state's politicians have had Amazon in their sights. The pressure clearly took its toll and although it took a mere 17 years to relent, Amazon this weekend began charging sales tax to its customers in California. It also pledged to open two new distribution centres in the state. Tax authorities estimate Amazon's move could generate more than $100m a year - funds that are badly needed, given the state's multibillion-dollar deficit.
With the deadline looming last week, west-coast newspapers reported a rush by online shoppers in California to beat the imposition of the sales tax. I can confirm that I was not among those bulk-buying washing powder or toilet paper but I did experience a twinge of guilt that I had not paid sales tax sooner. I could have done: Californians are required to add sales tax to their online purchases when calculating their tax returns, but the state estimates that less than half of 1 per cent of all eligible taxpayers actually do this.