Why tax online retail?

The idea that online retail is gaining ground and slowly adding to the decay of physical retail is gathering momentum across Europe and in the US. Even though each market has its own way of dealing with what is now widely considered a threat to physical retail, the urge recently expressed by several countries to control the negative impact of online retail is rather compelling.

Last June, bricks-and-mortar retailers secured a big win over online counterparts as the US Supreme Court invalidated a ruling that had enabled online retailers to avoid collecting sales tax from customers. Closer to us, the EU is actively discussing the possibility of a wide-ranging digital tax on tech companies. And in the UK, Mike Ashley, head of @SportsDirectUK ‏and new owner of @houseoffraser, confronted MPs in a rather punchy select committee appearance earlier this week, advocating that “the internet is killing the high street” and that we need “20pc tax levied on online sales” to save physical stores.

Despite the fact that the US, the UK, and to a certain extent the EU, are famous for their liberal view on business regulations, one can only question why they are willing to enter this battle. Only one answer comes to mind: fear. Fear that physical retail will slowly die and draw in its wake the rest of the economy. But perhaps the death of the high street is less inevitable than it first appears: physical stores remain, by far, people’s preferred way of shopping.

A piece of research recently conducted by the @ICSC  adds to this proposition by concluding that bricks and mortar impacts click, which impact sales. As an example, the opening of a new physical store results in an average 37% increase in overall online traffic to a retailer’s website. Still more online and less physical retail you might say – but if you look closely, what this study shows is that online retail cannot sustain its growth without the help of bricks-and-mortar. One supports the other, or to say it differently: the performance of retailers in the digital world is very much linked to the presence of their physical stores. If you need further proof that physical stores are still valuable, @amazon has recently reported $8.6 billion in revenues from physical stores through the first six months of 2018.

There are undoubtedly issues to address, for example, the UK’s dysfunctional property tax system – business rates – which is too inflexible to adjust to the swift changes we are seeing, and currently favours online retailers to the detriment of physical stores. But these are not insurmountable, and the decline of the high street is not inevitable. It will take some imaginative thinking from retailers and policymakers – such as that seen from Mike Ashley this week – but the solutions are there. The high street’s decline doesn’t need to be terminal.

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