Rarely does a week go by that I’m not engaged in a conversation about the sale of pool and spa products over the Internet.
I speak with many friends and colleagues in the industry, and the most common topic discussed is the major influence the Internet is playing on our businesses. Most of these discussions reflect a negative view of what is happening as a result of the increasing trend of online buying of pool products by the public.
There are numerous thoughts expressed about the causes and solutions to the problem, but pool professionals largely want to blame suppliers for supporting e-commerce. The solution discussed by most is that the suppliers need to police the problem.
I understand the frustration dealers and installers are experiencing. It’s affecting their traditional business volumes, already diminished from the recession. But I also recognize that the issue is larger than just the behavior of our industry’s supply base.
My views on e-commerce are formed from looking behind the curtain. Both Thomas Brown, my executive vice president at Aquatech, and I have studied the issue over the past two years, and I would like to share those thoughts with you.
In 1908, Henry Ford developed the automobile production line, which revolutionized the fledgling auto industry and caused a seismic cultural change in America. Today, we are witnessing a cultural change of our own with e-commerce. Virtually every household is now involved in online shopping, saving time and money in obtaining products shipped directly to their door. Late last year, the U.S. Department of Commerce projected that Internet purchases would increase 17 percent in 2012 over the previous year. These transactions, the agency estimated, would comprise approximately 5 percent of all purchases by the buying public.
The Department of Commerce also estimated that $28 billion dollars in sales tax is lost each year due to e-commerce purchases, which allow consumers to easily avoid the payment of state sales taxes. That computes to more than $210 billion dollars of annual commerce untaxed.
E-commerce has affected virtually every industry — autos, capital equipment, furniture, clothing, jewelry, electronics, publishing, pharmaceuticals, munitions, and on and on. Online buying is interfering with the traditional brick-and-mortar retailers up and down Main Street and in every strip mall in America. It is little wonder that this phenomenon would also involve the pool industry.
Allow me to relate to you a personal experience as to why the buying public likes the Internet. Recently I wanted to buy a new coffee table for my home, and I found the perfect one at a large local furniture retailer. The price was $995. I decided to shop around before making the purchase. Before I left the store I checked out the make on the table and then sourced the table on the Internet to the manufacturer in India. The table was shipped to my door for $450, freight included. So who is to blame in that scenario? Is the retailer gouging the consumer? Is the manufacturer not protecting his retailer in the United States, even though he sells to anyone worldwide? And who should collect sales tax on the 7,000 mile journey to my driveway?
In late 2011, Amazon announced a program whereby the consumer can receive a 5 percent discount on all Amazon-listed products if they downloaded the Amazon app onto their smartphone and then used the app’s scanning tool to source products (based on their SKUs) at a local retailer — a phenomenon called “showrooming.” Target, the large national retailer, was furious over this move and consequently wrote a letter to their suppliers in January 2012 appealing to them for help in fighting off the beast of the Internet.
Suppliers have helped Target and others by producing differentiated or unique SKUs with matching pricing so as to confuse the scanning devices and the consumer. But, realistically, how long is that going to last? Remember the Henry Fords of the Internet world are going to keep marching along with the quest to take a bigger bite of the enormous retail sales done in this country and across the world. And they have low overhead and marketing horsepower to overwhelm the smaller retailers.
So how does a brick-and-mortar owner survive in this kind of world? I believe ultimately a large portion of the buying public prefers, or even needs, to buy locally. But to attract that segment of the buying public, retailers and builders need to adopt some of the following practices:
- Just like Target, approach your suppliers to provide unique SKUs and pricing for your business where possible.
- Embrace the Internet rather than fight it. By that I mean install the Internet (via Wi-Fi) in your stores and places of business for your customers to access alternative pricing. This strategy shows that one is not afraid to have a discussion about pricing and service. When you receive customers into your store, invite them to discuss their options. They will respect you for it, and some will purchase from you because of the trust. Why turn a customer away?
- Provide your employees with Ipads and encourage them to learn your products and their pricing in the marketplace. Make your store the smart solution dealing with pricing, installation and warranty. Providing your customers with a personal experience on the product they are seeking will be rewarded with more purchases.
- Write your congressman and encourage him to support the Market Fairness Act, which has solutions to the country’s unfair tax practices for Internet sellers. America’s sales tax system favors online retailers, who are not always required to collect sales tax. This is a big disadvantage to brick-and-mortar merchants — sometimes upwards of 10 percent, depending on what state the consumer resides in. If the solution is mandated by a Federal law, individual states will have to pass legislation to rectify the tax disadvantage.