April 22, 2013

Picking The Wrong Side Of A Fight

Yesterday, I wrote about the two topics that are buzzing around the catalog vendor community this week (click here to read the blog post).
  1. Possible USPS postage increases.
  2. Possible requirement to collect sales tax.
Feedback on this article was distributed as follows:
  1. 100% of the feedback came from vendors in the catalog industry, and it was largely opposite of my point of view.
  2. 0% of the feedback came from actual catalogers.
Let's address the feedback I received, in the Frequently Asked Questions (FAQ) format.

If catalogers are required to collect sales tax, annual sales will be hurt, that's a no-brainer, correct?
  • Maybe.  Maybe not.  Time will tell.  I have measured the phenomenon for many retailers.  Retail brands open new stores in new markets all the time.  They will open a store in Omaha, and as a result, be forced to collect sales tax in all of Nebraska.  In the vast majority of cases (in fact, I cannot remember a case where this didn't happen), the e-commerce side of the business takes a brief sales hit, then sales recover within a short period of time (often 60-90 days), and return to prior levels.  In other words, there is no long-term impact on e-commerce sales.  Your mileage may vary.
  • Remember, 85% of most sales still happen in stores ... where customers willing pay sales tax.  Please keep that fact in mind - we're in a world where you can get free shipping and no sales tax, and yet, 85% of sales still happen in retail stores, where you have to pay for gas, invest time, and then pay sales tax.
  • Did you stop purchasing MP3s from the iTunes store when Apple opened a store in your market?  Did you switch to Amazon, who offered the same item at the same price with no sales tax, or did you continue to purchase music through the iTunes store?  Be honest!
But if catalogers have to collect sales tax, at scale (i.e. everybody), then the result is different, correct?  When everybody has to do it, won't annual sales take a 5% or 10% hit?
  • Maybe, maybe not.  When the depression started, back in Q4-2007, weak businesses were literally pushed out of business, while strong businesses (hint, Amazon) steamrolled along.  Issues do not hit all companies evenly.  If we assume that collecting sales tax will result in a dire outcome (retailers have suggesting the result is not dire), why will it happen evenly, across the board?  Might the issue push a weak business into the ground, re-distributing the demand from the weak business among strong business, thereby having no impact on strong businesses?  That's what happened during the depression of late 2007 - mid 2009, right?  Weak businesses ceased to exist, strong businesses re-calibrated and moved on.
But sales tax collection is currently illegal, we can't just let our laws change, we'll damage society and hurt the consumer, right?
  • It used to be illegal for women to vote.  
  • Our response to change is more important than the change itself.
  • What will your response be?
  • Remember, you have a control group ... states like Oregon that you'll be able to measure results against.
If the USPS raises rates, won't that cause catalogers to go out of business?
  • The USPS raised rates in the past, correct?  How did that impact your business?  Did prior rate increases cripple your business?
I don't think you understand, Kevin.  The combination of sales tax and catalog rate increases is like an additional 25% tax on catalogers.  The impact will be fatal.
  • Is that a question?
  • This will not be fatal to catalogers.
  • This might be fatal to weak catalog businesses that sell merchandise that customers largely ignore.
  • Focus on merchandise excellence.
  • Identify channels that your target customer shops in, and take advantage of those channels.
Your blog is widely read, and you're spreading misinformation out there to a large audience.  Why?
  • I am sharing actual project findings, based on actual customer behavior.  I have mail/holdout tests on my side.  I have e-commerce results from retail store brands forced to collect sales tax in markets where they previously did not have to collect sales tax.  I participated in the shut-down of a catalog division among a Jennifer-focused customer audience, and watched annual net sales increase on a $36,000,000 catalog ad cost reduction - think about what that does to the profit and loss statement?
  • I care deeply about my clients, and the catalog industry.  That's why I share actual facts, not memes.
  • Let's bring facts, based on actual purchase data from retailers, e-commerce brands, and catalogs, to the table.
Logically, it makes sense that these forces are going to destroy catalog marketers, right?
  • Since many of you are from New England, go talk to your friends at L.L. Bean (they are not a client of mine).
  • Ask L.L. Bean if their catalog business was crippled when they were forced to collect sales tax when they opened stores in new markets?
  • Ask L.L. Bean what impact the 294 prior USPS price hikes had on their catalog business?
  • Use L.L. Bean as a case study for how catalogers might respond to drastic changes.  They were not pushed out of business.  Give L.L. Bean Management a call, and have a discussion with them.  Get facts from somebody who has lived with the consequences of a sales tax burden.
Doesn't the customer need catalogs to shop?  Sales Tax + Postage Increases = Fewer Catalogs and Fewer Shoppers, Right?
  • Ask Amazon if their customer (hint - that's everybody) needs a catalog to shop?
  • Does Amazon's customer in Washington State, where Amazon must collect sales tax, spend so little that it devastates Amazon's profit and loss statement?
  • If your customer is June / Judy (age = 69-85, 52-69), yes, mail/holdout tests prove that this customer will shop less if you stop mailing her catalogs.  For this customer, sales tax increases and USPS postage increases could cause problems.
  • If your customer is June/Judy, ask yourself why you aren't supporting the ACMA?
  • If your customer is Jennifer / Jasmine (age = 36-51, 20-35), mail/holdout tests prove that this customer will continue shopping with your brand, but at lower rates (Jennifer) or will be barely impacted at all (Jasmine) if you stop sending catalogs to her.  If your customer is Jennifer / Jasmine, go tell the USPS what to do with proposed rate increases ... tell them you'll stop spending money with them and you'll reinvest your marketing dollars in the channels that Jennifer / Jasmine use.
  • If your customer is Jennifer / Jasmine, you are in a position of power with the USPS.
  • We need to stop acting out of fear.  We need to use the power we have to make a statement.  If the customer is Jennifer or Jasmine, we don't have to send catalogs to her.
I thought you were a defender of the ACMA?
  • I am!
  • If you are a cataloger who caters to June / Judy, I don't like the fact that you don't support the ACMA!!!!!
  • But if you are a cataloger who caters to Jennifer / Jasmine, the world has changed, and your customer changed.  Print is no longer the driving force for Jennifer, and is close to irrelevant to Jasmine.  And I have data to prove it, via mail/holdout tests.

I know, some of you think I picked the wrong side of a fight.

I picked the right side of the fight.  I chose data, facts, analyses, and mail/holdout tests, to determine my position.

Ask yourself what happens to the co-ops if fewer catalogs are mailed, thanks to the USPS, thanks to having fewer current buyers due to sales tax increases?

Ask yourself what happens to printers if fewer catalogs are mailed, thanks to the USPS?

Ask yourself what happens to whatever is left of the list industry if fewer catalogs are mailed, thanks to the USPS and sales tax changes?

Now ask yourself how you will respond?  You won't go out of business.  You will make strategic changes.  If your customer is June / Judy, you'll make one set of changes.  If your customer is Jennifer / Jasmine, you are already making changes that the catalog vendor community is not thrilled about.

I'm just asking you to use data and facts to see issues more clearly.