Should Amazon be doing more regarding Tax Nexus in the US?

Let me start off by saying that I am not an accountant nor a financial professional but I believe that there is a story that has been developing that can impede Amazon’s dominance in the US. Amazon is a hybrid marketplace in the US as it is both a retailer and allows third parties to sell to their customers to ensure that they can be the “Everything Store” that has virtual shopping isles that has an infinite length.  Amazon has inadvertently created a situation in which sellers are generating sales to States without them knowing the location of their products due to them using Fulfillment by Amazon (FBA). As Amazon moves products to warehouses all over continental US these sellers are generating Tax Nexus in States that could lead to an increase in tax to certain States.

Amazon has been seen by many and a certain leader as not paying tax and thus negatively impact retailers in the US. Amazon has started collecting taxes in most states to ensure that they can build logistics facilities closer to customers in various US States.

According to CNBC, after 1 April, the only states in which Amazon won’t collect taxes are Alaska, Delaware, Oregon, Montana and New Hampshire. These five states don’t have sales levies.

Map of US State Sales Tax Collection

Amazon has over the years made it clear that they are not responsible for the products that are sold on their marketplace nor are they required to enforce the collection of sales tax by third party sellers.

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Why I am changing my thesis on Chinese ecommerce

Over the last 18 months, I have been reading, researching and talking to ecommerce investors about China. Why? I am fascinated by the market as Chinese ecommerce is both unique and a look to the future.

China is unique

GDP growth

Economically China in my mind is bordering on a miracle. 6% growth consistently over 25 years which some years growing even more. I have realized that China has moved from being a factory based economy to a market that is reliant on consumption. The consumption has lead to the creation of businesses that are huge economically and only focused on creating wealth for their shareholders and the Chinese population. These businesses have to toe the line with the Chinese government.

If the GDP growth slows, Chinese consumption would have grown $2.3 Trillion by 2020.

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Why Facebook should buy eBay

I have been thinking about an article I read on PYMNTS regarding Facebook  and its Bay Area almnus eBay. There are a few things at play here which needs to be unpacked – who can acquire eBay, eBay’s decline and does Facebook make sense for eBay’s shareholders.

Pierre Omidyar started AuctionWeb that would become eBay and be a shareholder darling in the early 2000’s. eBay was an catalyst that put online auctions in front of millions of customers who looked for long tail items. Items such as Omidyar’s well documented broken PEZ holders (which turned out to be a myth), stamps, baseball cards and more was the items that drove eBay’s growth. The eBay alumni are found all over the ecommerce ecosystem in various senior roles and some have become investors into ecommerce.

Investors have been unhappy with eBay since John Donahoe took over from Meg Whitman but eBay as a commerce giant died the day they split from PayPal. Donahoe joined the PayPal board and Devin Wenig has been trying to grow a business that has lost its identity and key staff.

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You can’t out Amazon, Amazon

After writing about the 12 months post Jet.com acquisition by Walmart I have been thinking about how Walmart can win against Amazon.  While researching to write the post, I kept coming back to “You cant out Amazon, Amazon” which is both telling and indicative of how I perceive how Walmart is trying to win the US ecommerce market.

Amazon has their pillars – speed and convenience

Amazon has over the last 20 years consistently been willing to cannibalize their own business to stay relevant. They have also invested into logistics like FedEx or DHL would have and  invested into technology like Shopify and others have. By creating these levers they are able to commoditize them and sell the costs to third parties. Fulfillment by Amazon and Amazon Web Services have become like highways to customers with competitors building their own infrastructure.

Consumer wise, Amazon has focused on Speed and Convenience as being the drivers for consumer on boarding. Amazon Prime leverages both speed and convenience to ensure that customer spend heavily and create recurring revenue for Amazon. Customers have become accustomed to the convenience created by shopping on Amazon and searching with the Prime filter on.  That may seem one dimensional but in effect that is another touch point that Amazon has created a revenue generator by charging sellers to have their items delivered by Amazon.

Amazon has created speed that they are able to commercialize akin to an Uber trip (Amazon Prime Now) in which time and distance traveled are used to calculate the cost for the utilization of the Amazon infrastructure. Instant pickup weaponizes the speed to aim at brands and competitors.

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A Review On Walmart’s Ecommerce Efforts Post Jet.com Acquisition

I have purposefully not commented on Walmart’s ecommerce efforts after the retail giant acquired Jet.com. There were many immediate reactions to the acquisition but the simple truth is that no-one had any idea how it would end up. Let me be clear – the acquisition is a long term bet by Walmart on Marc Lore and his team to grow their ecommerce efforts. This is also a reflective post in which I am trying to be as objective as possible.

The day Walmart & Jet.com shocked the entire ecommerce industry

On 8 August 2016 Walmart shocked the ecommerce industry by announcing their acquisition of Jet.com for $3.3 billion.  $300 million will be paid via Walmart stock. The acquisition ensured that early Jet.com investors made large returns on their bet but no-one expected Walmart to be the ultimate end game for Jet.com as the company rapidly gained size via heavy spending on advertising, low pricing and buzz.

The initial thinking was that Jet.com was acquired due to the business taking market share away from Sam’s club. Jet.com used bulk sales and technology to provide customers with low pricing. It is important to note that while Jet.com was a startup Marc Lore ensured that he never mentioned Jet.com as an Amazon competitor but rather it was described as online version of bulk retail operations seen at Sam’s Club and Costco. I also need to mention that once Jet.com launched publicly it initially was going to use a membership fee to subsidize the low pricing it would provide to consumers. In a space of 6 months Jet.com moved away from the membership fee as customers were not willing to pay another subscription to a retailer (I believe that this was aimed at Amazon Prime but Lore under estimated the impact that Prime has on customers.)

I strongly believe that until the day of the Walmart acquisition, Jet.com did not have a business model that was sustainable nor clearly defined their future.

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