Winners and Losers in the Retail Sector
The recent Supreme Court ruling that requires online retailers to collect sales tax may turn out be a significant milestone in the evolution of online commerce and will affect both e-commerce firms and brick and mortar stores, said Sudheer Chava, a finance professor in Georgia Tech’s Scheller College of Business. He takes a look at who stands to win and lose from the South Dakota vs. Wayfair ruling.
The ruling, on the one hand, may help brick-and-mortar businesses to compete with e-commerce firms on a level playing field. But on the other hand, it may create an entry barrier for small and emerging players in the online retail landscape.
In a recent study, we analyzed the impact of the staggered rollout of a major e-commerce retailer’s warehouses on the income and employment of workers at geographically proximate brick-and-mortar retail stores. Using an employer-employee payroll dataset for approximately 2.6 million retail workers, we found that the establishment of an e-commerce warehouse in a county hurts the income of retail workers in that county and neighboring counties within 100 miles.
Using sales and employment data for 3.2 million stores, we find that retail stores in counties around e-commerce retailer’s warehouses experience a reduction in sales and their number of employees.
Overall, our results highlight the extent to which a dramatic increase in e-commerce retail sales can have adverse consequences for workers at traditional brick-and-mortar stores.
This ruling may help physical stores, both small and large, who were previously at a disadvantage relative to online retailers, and thereby, some of the workers of these retailers.
But, smaller online vendors without the structure or capacity to build tax collection apparatus in 45 different states may also face challenges. As states start requiring state sales tax collection for out-of-state retailers, the complexity of new regulations, legislation and enforcement is going to pose significant compliance challenges for small online retailers.