The other side of the Amazon tax

amazon4.jpgThe huge warehouses being built outside L.A. and other locations around the state will help cut the shipping time by a day or more - what would be another death blow to brick-and-mortar competitors. You may recall that Amazon justified not taxing its California customers by a Supreme Court decision that said mail-order companies without a physical operation in a state didn't have to tax in that state. But now that the retailer will have to include sales tax, starting Saturday, the company is switching the dynamic by building the distribution centers and thus providing faster service. In some locations (not L.A. so far), Amazon is experimenting with same-day delivery. So whatever benefit the brick-and-mortar crowd might have gained by forcing Amazon to include sales tax might be lost - and then some. From the NYT:

It is a monumental bet, even for a company that consistently defied skeptics on Wall Street and Main Street as it rose to become one of the country's largest retailers. Amazon's delivery of everyday objects needs to be fast enough and cheap enough to wean customers from their local stores. Yet it also must be economically feasible for the retailer, which is investing so heavily in the warehouses that it is barely profitable. If Amazon can truly deliver on its ambitions, said Sucharita Mulpuru, an analyst at the research firm Forrester, "it will be the dominant retailer in the decade to come."


Despite the attention that Amazon's technology receives -- its latest e-readers were introduced last week to the usual fanfare -- the majority of its sales are old-fashioned three-dimensional objects. The company's retail sales in the United States are on track this year to be roughly comparable to those of enterprises like McDonald's, Sears and Safeway. And while its sales are only about 12 percent that of Walmart, the reigning retail kingpin, they are increasing much faster. "Amazon is the giant sucking sound in retail," said Colin Gillis, an analyst at BGC Partners. But the company, he added, is switching to an untested game plan: "They have to hope that same-day delivery will offset the price advantage they no longer have."

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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