Pokemon Counterfeiter

Pokemon is a widely counterfeited product line as there is not much protection for intellectual properties such as Pokemon and Yu Gi Oh, or other products, found in China where most of these knock offs are manufactured. Fortunately for Yu Gi Oh and Magic, aside from the cards, there is little demand for ancillary products so neither offers much incentive for counterfeiters. Due to the widespread popularity of Pokemon, however, there is a lot of potential profit in making knockoff Pokemon products and, once they get into the US, the source is very hard to track down. Also unfortunately, one of the prime sources of knock off Pokemon products, Amazon, shows very little interest in policing its sellers. Unless Amazon gets a direct complaint from a manufacturer regarding a counterfeit product, the company will not take action.

Channel Restriction Notice

This is interesting.

North Star Games, publisher of Evolution and Wits and Wagers, announced yesterday that the company will restrict selling their games on Amazon to only two resellers. That means that anyone else selling North Star Games on Amazon will have to remove their listings from Amazon after March 9th or lose the privilege of selling North Star Games at all.

Amazon and the Future of Retailing

This week's Rolling for Initiative column looks at the future of retailing as influenced by Amazon.

Death and Taxes (Well, Taxes)

Following up on the last post about Amazon and taxes, the whole argument Amazon and other online merchants make about the difficulty of collecting sales taxes from and remitting them to hundreds of thousands of localities does not hold water.  As this article points out, Amazon has had software in place since 2008 that calculates sales tax for all merchants using the website as a storefront from which to sell.  Any issue of Direct Marketing News also advertises software that will calculate sales tax for any location in the US.  Granted the software might be pricey for a smaller online retailer but collecting sales taxes nationally is feasible.

A more fundamental obstacle comes from people's misunderstanding of the nature of sales taxes.  45 states, the District of Columbia and Guam all collect some form of sales tax. In those states, the sales tax provides the largest amount of funding for services offered by states and communities.  The first misunderstanding comes when people, and even some stores, refer to stores "charging" sales tax.  Stores do not charge sales tax, stores collect sales tax.  Stores that collect sales tax have been designated by the tax collecting authority within the state with the responsibility of collecting sales tax on items sold at retail and remitting the tax collected to the state (Items purchased for resale are exempt from sales tax).  In some states, the store receives a percentage of the sales tax as payment for performing the collection, in other states, the total amount goes to the state treasury.

The second misconception is that because a business does not collect sales taxes, that somehow exempts the purchaser from owing the taxes.  This is plain wrong.  In Quill vs. North Dakota, the Supreme Court ruled that businesses "without a physical nexus" within a state were exempt from the requirement to collect sales taxes from customers within that state.  That ruling did not exempt the customer from paying the sales tax to the state.  This is often called a "use tax" and there is usually a line to pay the total use tax on a state's income tax form, assuming it collects one.  In practice, few people pay the use tax and collecting it is so time consuming that most states forgo chasing after it, leaving lawyers and tax attorneys the primary ones who pay it, costing them about $23 billion per year.  About a decade ago, Illinois made a concerted effort to collect unpaid use taxes but wound up spending almost as much in the attempt as it collected.  The Marketplace Fairness Act, passed by the Senate but likely going nowhere in the House of Representatives would overturn Quill and require online and mail order retailers doing over $1 million to collect and remit sales tax from all customers.

A third misconception, and this is one that was repeated by the COO of Amazon, Nathan Bennet so he either really does not understand how sales taxes work or is deliberately ingenuous about the topic, is that online and mail order businesses should not collect sales taxes from a remote customer because the business gains no benefits from the tax.  This, of course, is simply wrong since the tax is collected, not for the benefit of the business, but for the benefit of the customer.  The funds generated by the sales tax are designated to fund projects in the community and state where the customer resides, not to benefit the business that collects them. The business serves as the most efficient conduit through which the sales tax money flows and, in many states, having a license to collect sales taxes is a requirement for doing business (also a requirement for opening an account with many distributors).

Of course, as I noted in the last post, the direction Amazon plans to take will give it physical nexus in all 50 states, requiring it to collect and remit sales taxes, like Wal-Mart, Staples, Barnes & Noble, etc., regardless of Quill, which is why now the company supports requiring online retailers, including itself, to collect (and remit) sales taxes.  Amazing how your viewpoint changes when the new vantage point benefits you.

Amazon and Taxes

Ran across an interesting article in Business Week recently on Amazon and how it influences our lives.  Roughly 36%  of all purchases made by Americans intersect with Amazon in some way.  Either you first find out about a product on Amazon or you do some research on it on Amazon or you make the final purchase on Amazon but over 1/3 of all purchases made  currently interact with Amazon at some time before the purchase concludes.  It amazes me that one company has so much influence on our lives.

Amazon is now wanting to influences your purchases even further, by increasing its ability to provide same day delivery of products.  Same day availability of products is the major advantage brick and mortar stores have over Amazon and other online retailers.  A customer can walk into a store, pick up a copy of Settlers of Catan or Get Bit and walk out with it the same day, playing it that evening.  Currently, you cannot do that with an online retailer.  With the exception of things such as software, movies, books and other items that can arrive electronically, the customer must wait at least 24 hours for delivery.  Amazon, as the article notes, wants to change that by allowing customers to order an item online in the morning and have the physical product delivered that afternoon.

This, by the way, is why Amazon has come to support ending Congress' exemption for online retailers from collecting sales taxes in local municipalities.  Online only retailers do not have to collect sales taxes in states in which they do not have a physical nexus, so Wal-Mart, with physical locations in every state, has to collect sales taxes for all online sales.  Amazon, which does not have such, only has to collect them in places where it has physical distribution centers, and in many cases, not even then.  However, in order to provide same day delivery, the company will have to have physical locations, exposing it to the requirement to collect sales taxes.  Ergo, it wants to make certain that other online retailers, not providing same day delivery, no longer have this competitive advantage.  For Amazon, it is another win.

Thanks, Amazon

If you missed it this week, Amazon, as a Christmas present to brick and mortar retailers, announced it would give up to $5 in credit on anyitem if a customer would go into a store, scan the item using the  Amazon Price Check app, then purchase the item through Amazon. The customer saves 5% of the cost of the item, up to $5, Amazon gets millions of people out there price checking for the company, and the local retailer suffers yet another attack yet another attack upon their business model.  Granted, Amazon’s promotion targets big box retailers, since both compete by selling a comparatively small selection of items at the lowest perceived possible price, more than us.  The product categories we sell make us essentially an afterthought to Amazon.  Looking at the current list of top 100 toys and games sold on Amazon, only four items we sell in the store show up (Bananagrams, Ticket to Ride, Settlers of Catan and Apples to Apples), though if you sell Melissa and Doug items, you are in a world of hurt as it looks like half the items listed come from the Melissa and Doug line.  Apparently, some of the large chain retailers are actually undercutting Amazon on items such as DVDs and books and this is Amazon’s way of fighting back.

Still the problem comes from a violation of an implicit agreement between customer and brick and mortar store:  the store still will offer a selection of items, available for immediate purchase and possession, and answer or attempt to answer questions the customer might have about the items under consideration. The customer, in return, will give reasonable consideration to the store’s offer and may or may not choose to purchase said item, but will not make a deal with another store while standing right in front of you. Essentially, that’s what Amazon is asking their customers to do: find an item in your store, get all the info they can from you, then deal with the salesperson they brought in with them. As Gary Ray, owner of Black Diamond Games, put it on his “Quest for Fun” blog, there isan implicit agreement between customer and salesperson:

Here's something I learned when I was younger. When you enter a business and engage a sales person, you have entered into a social contract where it is expected that both of you are acting in good faith. The sales person honestly and factually attempts to assist you, while you have intention to actually buy. It's alright if you're "shopping around," or not ready to buy, but the intent should be that the sales person has a chance at some time in the future.