Jason & Scot Show Episode 136 Amazon News, SCOTUS Tax ruling, Listener Questions

A weekly podcast with the latest e-commerce news and events. Episode 136 covers Amazon News, US Supreme Court Ruling on E-Commerce Sales Tax, and Listener Questions.

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Amazon News

Industry News

Supreme court rules in favor of South Dakota in South Dakota v. Wayfair, Inc., et al.  The ruling effectively overturns the previous Quill Corp. v. North Dakota precedent and opens the door for all states to require e-commerce sites to collect and remit sales taxes to states.

  • Amazon stands to be the biggest winner in the ruling.  Amazon already collects sales tax on all 1P sales.  Amazon will now be able to charge 3P merchants 2.9% to collect tax for them.  Amazon 1P will be more competitive with 3P and other e-commerce sites (eBay, NewEgg, etc..).
  • Small E-Commerce sites and marketplace sellers are the biggest losers, as they will now need to collect sales tax (and likely pay a 3rd party to do it on their behalf), and navigate a multitude of complex out of state sales tax laws that are likely to emerge.
  • All eyes turn now turn to Congress, to see if they will pass a law to clarify/simplify the sales tax collection issue on behalf of small businesses.

Listener Questions

Alex Volakis asks: Should others try the Warby Parker school bus store concept. Who do you think would benefit most from it?

Amit Agarwal asks: Do customers like bundled products or do they like to create their own bundles? What are different merchandising tactics used to sell a collection of products?

Jill Dvorak asks: Any leadership or managing through change tactics. at the corporate level to infuse more nimbleness in established brands?

Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 136 of the Jason & Scot show was recorded on Thursday, June 28th 2018.

http://jasonandscot.com

Join your hosts Jason “Retailgeek” Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Transcript

Jason:
[0:25] Welcome to the Jason and Scott show this is episode 136 being recorded on Thursday June 28th 2018 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.

Scot:
[0:40] Hey Jason welcome back Jason and Scott show listeners.
Well Jason listeners that are paying very close attention will notice we took a little bit of summer vacation off so we haven’t really podcast for last couple weeks
but it’s exciting to get back to it and we have a lot of news report on and some analysis of some big things that happened in e-commerce of the last couple of weeks
plus we’ve had some listeners very patiently waiting some for with some questions that they wanted to ask us so that’s going to be rude the real focus of the show tonight.
So let’s start off with some.
Amazon news your margin is there.
It wouldn’t be a Jason Scott show without some Amazon news and there is no shortage today we’re going to go through kind of the cream of the crop here so that the big one is and I know you’ve been on pins and needles Jason like I am is when is Amazon Prime day
well it has leaks and it looks like it’s going to be July 16th to 17th
and like last year they’re going to do kind of the day of the half of deals so I’m pretty excited I’ve been saving some of my Gadget money on the side and I’m going to be watching carefully to see what’s offered this year.

Jason:
[2:04] Yeah I am right there with you it’s it feels like
as the as it gets more and more in French do not do the deals and stuff get better every year and I think there’s been some interesting evidence that it’s now starting to have a meaningful impact on back-to-school that people are literally.
Like planning their back-to-school spend around Sunday.

Scot:
[2:25] Yeah any gadgets on your wishlist or I think you already have every flavor of the Amazon Echo if it’s cracked but anything not that you don’t have.

Jason:
[2:35] So to be honest of the stuff that’s currently available I there’s nothing on my wishlist so I’ll be.
Curious to hear if there’s some deal that usually it’ll be a deal on something that entices me or something that’s relatively new released there are some new fire products that I don’t have
but I’m not sure I really need to add him to my repertoire.

Scot:
[2:58] Got it I I save all year for my little accessory cables so I’ll probably be buying like
20 iOS cables and USB C use and we go to those like crazy at my house so this is my time of year when I stock up on all that good stuff.

Jason:
[3:14] My wife thinks I have a hoarding problem with those things and I like but I’m not smart enough to wait for the deal so I you know I get my eyes I would be the one customer that would do the subscription service from anchor.

Scot:
[3:26] Yes I Do by a lot of anchor product on Prime day that’s like there the juicy stuff I keep an eye out for.

Jason:
[3:32] Yes and I’m a little OCD about it I like I have much cooked my cables color coded so I got all my lightning cables are red and All Nite Nite my USB or black so I can.
Easily visually identify what I need.

Scot:
[3:50] Brickell there was a big acquisition today I know that you’re probably excited about cuz we’ve talked about this category on the show did you see that one.

Jason:
[3:56] I did I did and I have to go back and check our predictions but I think this is even one of my predictions for the air which I’m so excited about.

Scot:
[4:05] Darn it.

Jason:
[4:07] Yes I I thought you might not have considered that but there today Amazon announced that they acquired a company called pillpack and this is a 1 billion dollar acquisition which is not the biggest obviously with with Whole Foods but
on the bigger side of the Acquisitions for Amazon and pillpack is a male fulfillment Pharmacy.
They specialize in custom packaging so their primary customer are.
Dogs that have chronic conditions and have to take multiple prescriptions daily and pill pack make these.
Custom packages of their particular caplet so you get this right you know nicely old.
Baggy of the pills you’re supposed to take everyday and so that simplifies life for a lot of people that have to take a lot of medications.
And it is a good customer experience and arguably.

[5:04] It is in and of itself a nice way to reduce friction and improve the.
The prescription processed but I think the reason most people are are super interested in the Amazon acquisition is less because of their unique Twist on mail-order prescriptions and more the fact that.
This is Amazon buying a licensed Pharmacy and jumping into the pharmacy space with two feet.
We’ve seen them sort of toad it before course they they made an investment in drugstore.com many years ago and last year they got a bunch of.
Medical equipment pharmaceutical licenses in a bunch of states which allowed them to sell like.

[5:47] Oxygen dispensing equipment and gloves and a lot of the the medical equipment but this is now giving them access to actually fill.
Prescription medications and so you know a lot of us have been speculating that this would be another industry that Amazon would attack.
And you’re as usually happens with these things with Amazon.
That you know I think they’re market cap went up by you had ate the investment a billion dollars their market cap went up by like 15 or 20 billion today depending on what time you looked,
and the big pharmaceutical companies Walgreens and CVS
lost about 15 billion dollars in market cap today and it was kind of funny I think Walgreens had an investor call today and and that you know that.
That the Walgreens CEO at you know actually other the phrase that we we make fun of on the show all the time,
that he’s not very worried about Amazon that pharmaceutical Pharmacy is much more complicated than all the other categories Amazon’s tackled and it’ll be much different.

Scot:
[6:50] I’ll never figure it out just like a apparel and what Macy’s said there they can’t figure it out return.

Jason:
[6:55] Exactly return Macy’s is positive the returns are too complicated and all the apparel companies are positive that everyone wants to try clothes on before they order on them.
And not excetera excetera usually a Bad Bet there are complications to the pharmacy but I would argue that that Amazon is very good at solving for complications.
And then just a couple other sort of interesting Snippets around the acquisition there are rumors that that.
Walmart was the primary acquire of pill pack and the Amazon swooped in at the last minute with a higher offer and sort of.
Stole pill pack out from under Walmart.

Scot:
[7:40] Do you know if I know Amazon with myself registering in a bunch of States just go back to them into all the us or you know.

Jason:
[7:51] I don’t think so but I think he’ll pack has only certain states that they had access to and there still is a pretty big bear you’re like like still having the pharmaceutical licenses one thing but really,
be a hundred percent in the pharmacy space you also need all the insurers.
To agree to partner with you and light accept your.
Your claims against all the various insurance companies and so what would a lot of the traditional pharmacies think is the big barrier to Amazon is the Amazon doesn’t have those.
There’s deals with all the insurers and so you know.
Not sayings on can’t cut all those deals and they probably will but that’s potentially a multi-year process and so a lot of people are speculating that the day 1 Amazon would focus on
the subset of the pharmaceutical Market that’s paying out-of-pocket for for medication either because they’re under uninsured or because the.
Because they have some limitations or restrictions on the insurance that make them want to pay out of pocket and then you know there’s.
I got some speculation that Amazon would would even acquire an insurer which would then of course let them be the Fulfillment partner for that right and there’s.
There’s that you know there’s a separate initiative the Amazon is doing with Warren Buffett.

[9:19] Yeah around revamping Healthcare and and you know one of the the speculated outcomes of that is a potential new insurance product that could potentially partner with and with Amazon Pharmacy.

Scot:
[9:30] Yeah they just announced the CEO for that energy so seems like it’s getting some momentum there for those who didn’t listen to kind of our predictions for the year maybe you know what
what’s this mean for a CVS or Walgreens near us a Amazon successfully
can compete on the pharmacy side at least the pill dispensing are those things convenient enough still or do you think that this is a problem.

Jason:
[9:57] Yep so here’s what’s interesting so that the traditional drug stores that are Walgreens and CVS is.
Their whole business is predicated on foot traffic coming in to fill prescriptions in so the.
Like they they don’t tend to be super price competitive on all the over-the-counter products that they sell in the store and they don’t tend to be a destination for any of those products for very many consumers but what happens is you going to get your Lipitor and you realize.
That you need some snacks or you need some tissue paper or you need some Advil or whatever the case is while you’re in the store.
And so have a significant number of customers no longer need to visit Walgreens to pick up their prescription.
The Walgreens brick-and-mortar model literally doesn’t work like there is not a like another compelling reason for traffic to go in those stores.

[10:56] And so you know either that would you know put Walgreens in huge distress or Walgreens would have to sort of find some way to reinvent their their retail space.
And you know most most of that analysts look at those retailers and say hey the big Investments those guys are making these are in insurance companies and they’re really their their plan is to sort of pivot from being a brick-and-mortar retailer to being a.
A healthcare provider that’s not tied to brick and mortar.
And you knows we talk about a few times on the show Amazon doesn’t have to capture 50% of the pharmacy market or anything like it you know if they can take a a 10% or 15% and in the traffic of those stores.

[11:38] Like that probably put them over a Tipping Point that makes those doors not profitable and so it’s.
A very material threat to traditional drug stores.
Whether Amazon successful or not if a bunch of consumers just decide that it’s better to have their Pharmaceuticals delivered to home.
I’m in there many companies trying to do that then you know that puts that same stress on those drug stores,
it’s been interesting the kind of traditional mail order pharmacy hasn’t really gained a lot of momentum so there’s a insurers insurance companies drive people to mail order pharmacy and there’s a percentage of.
Consumers there get their stuff VIA mail order at the percentage of people that use my order has actually shrunk a little bit in the last couple of years and so it’ll be interesting if.
Amazon can come up with a new enough experience or these custom pill packs are a big enough value-add that they,
you know permanently change that that consumer Behavior which will you know really put a challenge in the drugstores and I I would expect to see a ton of drug stores close.

Scot:
[12:44] It just sounds so slow mail delivery.

Jason:
[12:47] Yeah and maybe mail is the wrong word right like I mean you know you can imagine all kinds of same-day fulfillment centers like at the moment.
You know people tend to get get the home delivery of
prescriptions when they’re tronic things that you take you around right and when you you know God forbid you’re sick and the doctor calls in a prescription or you go see a doctor and they call in a prescription that you pick up like those are the things you’re more likely to walk in and
and get that but of course there’s no reason that pharmacies couldn’t.
Prepare those those meds or Amazon you don’t own pharmacies couldn’t prepare those meds and deliver on in 1 hour to your house.

Scot:
[13:26] Yeah yes so it could be a cool Prime thing like Prime Pharmacy where yeah Auto refills the pharmacies I deal with like they never called the doctor and do stuff right so Amazon consult a lot of that stuff so.

Jason:
[13:41] There’s a ton of friction in
current experience that like we as consumers are just learn to deal with that that you can imagine someone like Amazon taking out of the experience and and make it game changing like in the in the same way that Uber disrupted the taxi industry.

Scot:
[13:57] Cope well that was one of your predictions of one of mine was about Amazon delivery and today there was an announcement about that sort kind of kind of
even on this I guess
Amazon sent out this really interesting effectively up a call to on chores to build delivery capability that that Amazon will then leverage there as we’ve covered on the show a lot there
the really worried about the capacity out there in the network they’re building their own direct this is really what I would consider a call to arms for entrepreneurs to build a 1099 kind of delivery Network
yeah I talked about going out starting a business for a minimum of 10K
wish you the vans that are Amazon branded uniforms and then they talk about how and their models of doing this.

[14:43] You can make up to $300,000 in profit a year that’s pretty interesting in.
A little unknown thing is FedEx Ground did this they had
they had a lot of 1099s their individuals and then there was some kind of a court thing that happened where that was deemed
did they should be employees so they world all that up into businesses so when you see FedEx Ground delivery out there it is a it is a 1099 Network it’ll frequently say you know
FedEx Ground operated by and they’ll be some little LLC brand they’re kind of small down by the door.
Doubt they have built a similar, Network so
this is going to be interesting to see how Amazon build this out if they’re certain areas they’re targeting and then also what this means for the flex drivers which is more of an Uber individual kind of a thing there’s a lot of work
a lot of
people believe the Uber 1099 model is at risk that that same kind of litigation will happen that they’re actually should be treated as employees this would
Guild Amazon another kind of an option on delivery if that were to happen to the flex driver thing too so so kind of covers several basis I thought that was pretty interesting.

Jason:
[15:55] Yeah and I in my mind I could imagine.
That it’s easier for Amazon to enforce and Achieve certain service levels with these.
Individual with his business operators over the 1099s i e you know it’s like you can require these businesses to buy these Amazon branded trucks into wear Amazon uniforms and things that are like,
less convenient and economically viable to impose on individual 1099 work.

Scot:
[16:32] Yeah I should have mentioned it but one of the things they’re going to provide is the software so there,
I can give you all the software needed to run a business like this I think it’s from an acquisition they did that they have kind of been using internally or maybe as part of flex and now they’ve there they’re part of this whole deal is they will give you the software
which is kind of a clever way for them to have visibility into the SLA is right they can kind of see if your using their software in the cloud presumably they be able to see you know how you’re doing against LA’s
the required to use their software because they didn’t want to be able to see them.

Jason:
[17:08] Yeah I mean I read through the whole program and to me it feels exactly like franchisee model like I mean they’ve they’ve completely template eyes the whole business they they give you all the processes and software like they literally have like.
The Dead
training program down in the hiring recommendations for these businesses and they have the whole economic model is it like they essentially say that like hey you know depending on how quickly you scale
you’re going to make between you’re going to net between 70k and 300K a year in this business.

[17:48] Anything else about the Amazon do it by the way what
I just found someone interesting the Amazon delivery was this big plans PR thing and they had a bunch of media to Seattle and they you know gave the media all the story under embargo and so
you know today was the big announced a and they got a bunch of press over that over all that and then it
it feels like I kind of got stepped on when they announce the pillpack acquisition you know which they did none of this pre-press planning for.

Scot:
[18:20] Yeah yes sometimes the best plans going to get
Crush by that the dip The Pride react to Walmart into that position was on its own timetable that they couldn’t control and it just kind of unfortunately probably landed on the same day happen sometimes.

Jason:
[18:36] Another interesting thing that came out last week is
at age does this evaluation of all the top advertisers every year and a surprise,
appearance on the top 10 list was Amazon as the fourth largest Advertiser in the United States
so they’re spending more on Advertising then folks like for GM and they’re the retailer that spending a listen advertising so they’re actually spending more and advertising than Walmart it.

Scot:
[19:10] Yep that’s interesting it’s funny because it’s for you know for the longest time basil said they would never really do marketing cuz they prefer to put all that money into shipping fee and you know that that word of mouse with mouth was the best marketing but then once they came out.
With Kindle they had to really kind of start doing some marketing In and Out imagine if you looked up the bulk of that is going to be around Alexa.

Jason:
[19:34] Yeah no I think that’s I think that’s why Fair they develop a bunch of owned Brands and they’ve they’ve had the market to support those owned brands.
But I do think you know that and they’ve kind of had them float on this they are also investing a lot more in Performance Marketing for just a core retail business at the moment then they.
They have it in the recent past said so you know you leveraging Google products and things like that to drive more traffic to Amazon.

Scot:
[20:03] Another interesting Amazon news piece this is kind of more internal facing but I think listeners will find it
pretty fascinating it was a little bit of clickbait so that you know the article came out of Bloomberg and it it showed one of the the Kiva warehouse robots and it said you know
Amazon’s robots are moving for the warehouse to headquarters which kind of you like what are they going to deliver pencils or what’s going on
what’s really happening is as we’ve reported on the show we had to Andrea lay on and she was telling us about some projects they had internally where an AI World very frequently negotiate with indoors and they call it this whole hands off the wheel initiative,
there’s several layers so that there’s there’s vendor negotiations but then there’s also you know on the first party side.

[20:52] Putting machines against humans to see who can piss pick the best products to put on Amazon and buy.

[21:00] And at the same time you also have the marketplace side of Amazon
so what’s happening is it looks like they’re squishing all this together now the guy that ran the third-party marketplaces moved over to a new project that’s on an ounce Peter Pharisee so they wrapped up
the marketplace and the 1pt mused to be very despair teams you I would go to Amazon in
in meetings and introduce people across his team so it was funny and it looks like the Common Thread there is less peep
so more machines can imagine these categories because they effectively do a better job more machines doing negotiations
and less people and then this kind of integration of 1p and 3p
I think this is good because we found a lot of vendors get really confused and mixed messaging from Amazon where they’ll go to one team in Amazon the go to the marketplace apparel team and say hey we want to do X Y and Z in those say you know oh no you have to do this that the other and then the one p team will get a whole different answer so I think this ultimately be good and you’re the 3p team the three-piece cider Amazon
bigger than the one piece side so
I think it’ll be great to have a lot of that DNA kind of mixed in there and you know there’s a downside this Automation and
can be pretty frustrating to companies that are used to the old school you know having going to.

[22:23] Bendle and chicken someone’s hand and showing them the products and those kinds of things this is
essentially you can stay home and chat robot and have the same outcome of the Amazon now so you know it’ll be interesting to see how vendors net out on this change but it did
pretty interesting the automation you know what they at least according to Amazon’s data has beat out people is as it comes to merchandising and negotiating with Thunders.

Jason:
[22:50] Yeah for sure who the things are interesting to me about that merger I do feel like there’s a way when they were more siloed in which sellers could potentially take advantage of this I was so I do think they’re brands that,
wanted to sell 3p on Amazon didn’t want to be one piece hours because they wanted to control their own pricing like in in principle,
if you’re going to be a three-piece seller on Amazon Amazon has the right to like also be a one piece seller but a lot of,
Brie and seemingly fell between the cracks there and we’re able to be pure 3-piece hours without being bothered by the 1p guys and there’s a lot of speculation that now that one p m 3 p r kind of merging that
like you know that Aunt Amazon going to be a lot more purposeful about who can be a 3p seller without without Amazon having the option to be a one piece hour.

[23:46] So it’ll be interesting to see how that plays out,
and then that’s the thing that I chuckle at with the hands off the wheel I think it’s a super app metaphor if you’re a very big seller on Amazon
you do have a a human contact and you have this personal relationship
and I think what’s funny about that is it’s exactly like the the safety driver in the autonomous vehicles like
you know it maybe makes you feel better that there’s a guy sitting in the driver seat but he actually isn’t touching the steering wheel and so you can have all the good conversations and take him to dinner and do other relationship building you want.
But at the end of the day it’s the computer that’s deciding you know what the the terms of your your trade relationship are with Amazon.

Scot:
[24:35] Summary of some of the Amazon highlights over the last couple of weeks
biggest news item is our very own Supreme Court in the United States got involved in e-commerce and I know you have a lot of interesting insights on this one so I’m anxious to hear your thoughts about what happened there.

Jason:
[24:57] So this is a case that the Supreme Court heard several months ago and they they ruled I guess this would be the last week now.
The actual case the Supreme Court ruled on is called South Dakota vs Wayfair Overstock and do egg and a lot of people sort of shorten it to South Dakota vs Wayfair.
And essentially South Dakota passed a law that said we’re going to require sell sellers.
To collect sales tax when people in South Dakota buy goods from them even if the seller doesn’t have.
A presence in South Dakota and that there’s actually a precedent.
Based on a ruling the Supreme Court ruled on in 1992 that South Dakota can’t do that right like there’s this.
President called quill which was confusingly enough it was actually quill vs North Dakota.
That the Supreme Court ruled on a 1992 that essentially said.

[26:03] In order for a seller to be required to collect sales tax for a given State they had to have a physical presence in that state to establish Nexus and so a lot of.
Pure play online retailers.
Based on that rule like avoided having a presence in big populated states so that they didn’t have to charge sales tax in those States.
And it actually determined where Amazon’s corporate headquarters would be when Jeff Bezos was starting the company that.
President was already in place and so they they pick Seattle because it was a good techhub that didn’t have a huge population and wouldn’t be a huge customer base and avoided.
Having a presence in States like California that would be huge customer bases and in the early days of Amazon.
Amazon was super restricted with their employees they wouldn’t let their employees you know do business travel to the states they wouldn’t let the campus recruiters like go to the the job fairs in the college dates because they were there being super careful too.
Avoid establishing a physical presence so they could have avoided paying taxes.

[27:11] Into this this the Supreme Court in this ruling essentially reverses that quill precedents and so so so now it’s going to be possible for states to pass a law that essentially require.
I’m all us out of state sellers to collect sales tax and remitted to the the states.

[27:34] And you know there’s a couple of interesting things in that first of all.
You are a ton of the media you know I was writing about how what a big win for Mainstreet this was and you know how was a blow to Amazon and.
You know that the national retail Federation you know kind of claim though it was a victory for retailers and in tax fairness and all these things.
The reality is in my mind the biggest winner in this deal is Amazon and the reason I say that is because.
Amazon is already collecting tax Amazon gave up avoiding that Nexus a number of years ago.
They’re collecting tax in every state that has attacks and the reason they do that is they wanted to put distribution centers everywhere and they wanted to put Prime now centers everywhere and they just found it.
Was better for them to collect the taxes then to have all these impediments on where they could have a physical presence.
So this actually makes Amazon more competitive with other online pure plays right so it it it actually makes Amazon more competitive with Overstock and Newegg and and like all these.
Visa vertical specialty retailers like a faucet that you know specialize in plumbing fixtures in our aren’t collecting tax.
So it helps Amazon’s 1p business be more competitive.

[28:52] That detect the sales tax that Amazon isn’t collecting is from 3-piece hours who have the option to collect the tax or not and most don’t.
And so this ruling is going to require all of Amazon’s 3p sellers to collect tax which is actually going to make Amazon’s 1p business more competitive with the 3p business so that’s a win.
Also Amazon charges a 2.9% fee on all sales.
In order to calculate and collect tax for those 3p seller so this is a huge new service fee that Amazon is going to start collecting from all their Marketplace vendors so that’s a.
A big win.
This ruling makes Amazon more competitive with everyone else and really doesn’t hurt Amazon’s competitiveness.
In any meaningful way.

[29:47] Which is which is interesting and I would argue a lot of the the the media and info Scott wrong when they when they first heard about this announcement.
Who’s probably getting hurt by this is a lot of the small sellers right if you are a a a small business that’s primarily selling via 3p on Amazon and eBay.
You know your your cost just went up and potentially.
There are about 12,000 tax jurisdictions in the US and so every one of those jurisdictions in theory could now pass a law that says you have to collect their tax and they can each have their own rules for the tax.
And So It Goes could be a huge burden to the sellers.

[30:32] Track and calculate these 12,000 different tax laws and so you’re not allowed to have to cut the tax but you have to pay a bunch of money to collect the tax.
Properly and that is a potential big burden for the small sellers.
I would argue there’s very few small brick-and-mortar retailers that aren’t also trying to sell online and aren’t also trying to ship out of state.
So you know when people talk about this benefiting Main Street it’s only benefiting the dinosaurs on Main Street that haven’t figured out how to launch a Shopify site yet right.
And so so it is going to be a potential burden on a new small businesses.
And what’s going to be most interesting to watch now is that the South Dakota version of the tax law is a very mild version of the law.
It essentially says that all the different cities in South Dakota can’t charge their own individual taxes that that dumb.
We’re going to have a Statewide system that’s easier for businesses to comply with.
And it’ll also says that the state can’t collect taxes retroactively so no one’s going to be on the hook for their sales over the last 5 years but.

[31:44] Any new state could now pass out a more aggressive version of the law
it has more burdens for the the small business and that even tries to retroactively collect taxes for The Last 5 Years
and it’s it’s unclear based on the Supreme Court ruling weather
whether the states will be able to get away with the more aggressive version of this wall so that it’s it’s kind of going to the tech
e-commerce taxes into a little bit of chaos while this all plays out and you know I think.

[32:15] Everyone’s hope which seems like a long shot is that what what could really simplify all this is it Congress sort of enacted a
a lot the clarified what what how State should treat the taxes and Congress could pass a national law that essentially say is all the states have to,
you know follow the same system in charge the same rate and there’s lots of draft of these kind of laws there was one that was drafted a couple years ago called The Marketplace Fairness Act
and it could allow all the states to collect sales tax but dramatically simplify the process of collecting those taxes for all the the online Sellers and protect all the online Sellers from retroactive taxes and things like that so
like the right thing to do for our economy would be for Congress to pass a law but it you know it seems like
there’s a lot of partisan stuff going on in Congress and you know doesn’t seem like there their they’re passing a heck of a lot of common sense legislation at the moment.

Scot:
[33:19] Another interesting win for Amazon is there’s a fair number of people that don’t use at ba because
Amazon just parked around an FBI and if you’re one of these companies that’s really you know of a carefully watching where your Nexus is you can’t say to Amazon
you can’t say two things you can’t say I only want my product Cindy’s FBA facilities you also can’t say you know where is my product right now so I can make sure that I’m tracking where I kind of I could have Nexus or not so presumably this
get rid of that both objection and now you might as well just use that Paso another win for Amazon is FBA if we’re going to go to a world pretty quickly here which seems like what you’re predicting where every state is charging some form of tax.
The NFPA is another enough was going to get more users because it’s going to be enough there are no negatives for for doing that around Nexus.
How do you say so if I may say I’ma an eBay or an Amazon Seller today what do I do do I need to start,
cutting taxes out there one should start that right now like what’s the action item on.

Jason:
[34:30] Yeah so at the moment you’re only on the hook for the state you have a physical Nexus and and South Dakota.
The each state has to pass an out-of-state tax collection law in order for them to then put this burden on on sellers
and there are a number of states that have laws going through their state legislature right now
and so you like your your immediate action is that you you do need to start you do not have a tax liability in South Dakota based on this ruling
but you can anticipate
didn’t very short order all the states are desperate for money so of course they’re all going to pass along some of the legislators are in a position to do it real fast summer going to be slow and and complicated
the burden is going to keep going up and almost you know certainly
the the way that most sellers are going to have to do this is you’re going to have to pay a third party to calculate
and remit all these taxes on your behalf and so that’s another big winner in this is
companies like taxjar and vertex and Olvera and those those companies that help businesses calculate and remit sale.

Scot:
[35:44] Yeah now,
physical stores the taxes get down to you know literally the municipality so you could be in you know Secaucus New Jersey and they have a different apparel tax there’s a tax on shipping but then certain there’s no food tax or something that you cross into another area
and the taxes are all different do you think this is going to get that complex or are you to the municipalities going to try to take there
local tax structure in Buckhannon National kind of for that City kind of.

Jason:
[36:16] So here is going to be the balancing act all the municipalities would have like to pass their own laws so Secaucus would definitely like to have their own tax collection law and have their there sales tax laws imposed on all out of
the jurisdiction Cellars the thing that’s going to keep them all from doing that is that there’s a
a clause in the the the.

[36:45] Though the prevailing tax laws that says
States cannot put an undue burden on cross-state Commerce.
And so the argument is going to be that it every municipality have their own set of laws and Secaucus has a tax holiday on this particular day and doesn’t text food and all these different things
the bat is going to trigger the Commerce Clause and and put an undue burden right and so part of the reason that the Supreme Court said they ruled in favor of South Dakota is because the law is was very carefully written to try to minimize that
the the bird and right inside they don’t date the it explicitly does not allow individual municipalities in South Dakota to have their own tax laws like they are there there’s a Statewide
tax system for out-of-state Sellers and so it knows.
Supreme Court rule on any other than the South Dakota version so if Secaucus now pass is a really you know burdensome law and again Secaucus could also say and you owe is taxes for The Last 5 Years of sales.

[37:58] Then you know someone’s going to be able to litigate that and say it’s a violation of the Commerce Clause and that potentially could make it back to the Supreme Court and you you know,
the Supreme Court could choose to hear it or not and they could you know essentially say hey the South Dakota version is
we going to bed the more you know arduous Secaucus version is not legal and so you know every States going to have to balance how aggressive they want to be
you know with with how much we go Jeopardy they they they want to assume you know in case these things get where to get it.

Scot:
[38:36] Yes it feels like it’s going to take like 5 to 10 years for this all the sort out and it’s kind of a
kind of a boring Plumbing topic but I think it’s important for listeners cuz a lot of articles I read we’re super confusing and I think you did a good job of summarizing.

Jason:
[38:50] One last point that just was kind of sad I give you actually listen to the
the oral arguments in the case like the justices were asking really good questions how expensive is it for a small business to calculate their tax liability if this if we rule in favor of South Dakota
how you know how much is incremental cost is is that going to impose on Wayfair bright and.
It was really embarrassing,
how little tangible information the lawyers in both side of this case had and how e-commerce works and I I say that like.
If your lawyer like arguing a case before The Supreme Court that is like the Superbowl of
litigation right and you’d expect like the most prepared best teams and yet you know it it’s felt like the
the level of preparation in knowledge about how digital Commerce work you know was was pretty pretty lacking in the justices openly expressed frustration that they couldn’t get.
You know clear answers to who you know some some reasonable questions about this so it you know it’s further further evidence that,
you know the economy and Technology are way way way ahead of the legal system.

Scot:
[40:08] Oh I nominate you to be a expert for the next to supreme court hearing on this.

Jason:
[40:13] Yeah I would make myself available that would be a pretty awesome gig.

Scot:
[40:19] Yeah and you get to wear a suit how fun is that.

Jason:
[40:21] I I have done some federal expert witness stuff in the you know I am willing to wear a suit for the the fees that you’re able to charge as an expert witness.

Scot:
[40:31] Cool that that kind of wraps up the news section of the show and let’s transition into some listener questions.

[40:44] Question question question question question.
Alright get the echo turned way up on that one our first question is pretty Technical and it comes from a friend of the show Scott Silverman this one goes back you mentioned this kind of
in a phrase recently sniffing the tires Scott wants to know what do you recommend is the best technique for sniffing tires.

Jason:
[41:15] Hey Scott I totally appreciate the question
sort of two-party answer if you are a casual Tire sniffer I think what you want to do is just you know get down on the ground get your nose is close to the tires as possible and you know really just sort of
in intake the the fumes but if you’re going to be a serious professional Tire sniffer what you really want to do is
get the hydraulic jack and raise the car up to nose level because that actually
allows a lot more oxygen under the tires which which you know helps more molecules get in your nose and really get you the whole bouquet of the tire.

Scot:
[41:56] And of course it’s important to take the vehicle for a spin before you do this you get that like nice fresh smell.

Jason:
[42:03] Yeah you do want the rubber warmed up absolutely great point.

Scot:
[42:06] Our second questions comes from and I’ll do a blanket apology there’s some last names in here that may be a little tricky but I’ll do my best this is from Alex Velasquez and he asks should others try the Warby Parker school bus tour concept and who do you think
would benefit most from it I had no idea what this was so I figured this was a good question for you.

Jason:
[42:27] Yep so this is one of the early marketing tactics at Warby Parker did I think they actually did this before they open the formal store I’m so they I think they may be
were using their corporate headquarters is a showroom but essentially what they did is they bought an old school bus decked it out
and started driving to events and venues and things
and letting people try on their glasses and it was a super effective marketing vehicle it’s sort of a mobile pop-up store if you will
and so in general I would say those kinds of things are a great tactic particularly for e-commerce business is what
you know you feel like you’d benefit from a physical presence so I got a pop-up store avoids a lot of the costs of
permanent rent you know which a lot of the times of the year the traffic in that that store is going to be low so you can do a pop-up just around Peak times and instead of it being fixed to one location the idea behind this bus is you could send the bus to a lot of different locations
so there you know what be purchased per ticket clever and they’ve done a bunch of versions of since the school bus
so they continue to use that tactic I do think it’s a good customer acquisition and brand building tactic.

[43:45] The there’s actually a retailer that’s been doing it much longer LL Bean literally have a.
A bus built in the shape of their iconic rubber boot that they drive around and let people try on boots and kind of build their brand.
Do that and they send it to outdoor festivals and stuff where where people might be interested in the boots so I think it’s a good tactic.
A lot of Brands could potentially benefit from it but the brands that would most benefit from it.
Is if there’s a a physical a or experiential element to the kind of products you’re selling,
so that it’s not only are you building your brand awareness but you’re also helping people you don’t get that tactical experience so if you’re selling.
You know food and and you going to give people a chance to try it or you’re selling apparel that gives people a chance to try sizes or.
I feel the textiles are or you know things like that are particularly going to benefit from these kind of mobile pop-up store.

Scot:
[44:51] Cool and thanks for the question Alex.

Jason:
[44:59] So I think the next question is from vomit.
A gyro and thanks God for just claiming that were massacring names do customers like bundled products or do they like to create their own bundles what are different merchandising tactics used to sell collections of product.

Scot:
[45:19] Yeah this is this is a good one you know it it kind of depends so.
I like a system where the consumer has the you know a fair amount of power and convenience and they can choose to either buy a core
product and its Associated add-ons and you have any Commerce system that is smart enough to kind of recommend the right things you know so it’s not kind of recommending
these things that are kind of random but they’re frequently bought together. Which is a feature that you see on Amazon all the time
now one tactic where this comes up a lot is in the world of marketplaces where.
Frequently you’ll be selling where you see this the most is in digital cameras this is
kind of case study of this so what you see is you go to Amazon and you search for you know a Canon D40 which is a common camera
and you know the tops quc is that core camera body SKU.

[46:18] But then what a lot of people do is they will create a new skew by creating unique bundle.
And I’ll take a camera a memory card a set of lenses and a bag and a variety of things and I’ll create a new skew a new Ace in in Amazon parlance and that is you can kind of a.
You should have separate from the competitors for that Coeur Camera.

[46:43] The be there for you know when consumer searches for Canon D40 if you’ve done this right you should have a pretty good shot at showing up higher level and then see
you can effectively have a price that is much just submitted Lee discounted for that bundle and you’re effectively hiding
you know the discount in the margin by obfuscating it to the consumer making it harder for them to price compare so some things now
you know this whole truth holds true for other marketplaces like eBay and Walmart eye center now the downside of this is Marketplace in her wise to the store frequently kind of challenging these things and saying you know
does a bundle really make sense what are you doing here are you kind of ruining the customer experience.

[47:33] So I’ve seen that used in it as a merchandising tactic there on your own website to
I don’t think I’ve seen as we have a child as we have this very clever skateboard a Cellar and they’ve come up with a couple private labels like their own wheels and things like that so when they they take a deck and skateboarding you have the deck which is just sold without wheels and and the the other pieces there and then they
they take some private label stuff or owned brands do use Jason’s language and it does create this kind of unique bundle that then isn’t available anywhere else,
and they can do a lot of relaxing things with pricing on that because they can’t really change
do the map the price but when they put their wheels on there they can offer this bundle that that is never more competitive anything else out there because they have
got a known brand on the wheels and they have more margin and they can pass it on to the consumer so those are some of the things that come to mind for me Jason anything you want to add on bundling.

Jason:
[48:31] Yeah I would just say like the there are two similar but different things in my expenses,
in different circumstances consumers want both so so every
e-commerce platform uses a different vernacular but, binocular would be bundles versus kits right and so in this scenario a bundle
could be.

[48:56] A set of things that are recommended to go together right so shop the look you you one quick button and you add the blouse the pants the belt and shoes.
But all four things get separately added to your cart and then you could edit the cart you could get two pair of the the blouses if you wanted and you could delete the shoes if you already had two shoes for example so it’s,
a shopping convenience to put related items together
you know in and apparel is a common version of that like in crafting it could be a kit or project I got all the.
All the items you need to make a sweater or something like that in food it could be by the recipe to get all the ingredients for a particular dish.
But you know of course the customer might already have salt so you you know the customer could take salt out of the cart after they.
They bought that bundle in a kids are often.
Hard coded things that have to go together so it’s one skew it shows up as one line item in the car you can’t edit it.
If any of the items in that cat are unavailable then the itin.
The kid is unavailable in the order we get back ordered and things like that and so there are certain types of products.
That lend themselves to kits and to your point.
If you’re going to have a special price on the the multiple item configuration than you probably want that to be a kid because you wouldn’t want customers to.

[50:25] Then delete three of the four items and still get a special price.
But in some cases you just want to make it easier for people to buy multiple things and have a higher overall cart and then there’s.
A lot of nuances in the kits are they.
Hard-coated manual kits what you would often cause static it where you know the skews are permanently tied together are there Dynamic kits that are built by recommendation engines or things like that are there
customizable kids you know that have different options that customers can pick via VIA attribute type selections and
and so it is super complicated thing and it is one of the things that can differentiate some of the e-commerce platforms from the others is
their support for a broad range of these different options vary wildly
and then when you throw in the ability to offer promotions on top of these bundles or kits that can get super complicated and so that you know
if you know that that’s a core part of your business that might drive you to select one one eCommerce platform versus another because it might have better support for the
that the particular model year use.

Scot:
[51:35] Is anyone using AI to solve this like.
Yeah I think I need Amazon’s is kind of a group thing I’m sure there’s gotta be like 10 AI vendors out there trying to solve this kind of Phoenix recommended product.

Jason:
[51:51] Yeah and I mean this man takes get tricky like I would argue that the
the Panic recommendation vendors that have been around for 12 years like they’re rich relevance in a certain is like they’re there heavily AI base solution so it’s almost like.
Saying it AI recommendations versus not as kind of a difficult distinction to make the,
that most of the product recommendation product that I’m aware of the you know are going to be closer to you. The most common model is
they’re going to recommend other products and you have to click each product separately to add it to the car
they may offer bundles which is one-click ordering right in in Amazon does bundle the recommendations the right so right below the main product information on the product detail page
there’s always going to be up by these bring three things together which is you know it’s the AI base recommendation engine is putting the three things that you most want together and you can choose to add one two or three of those things to your cart so that just that
S Mart Convenience that Amazon’s done to try to get the aov up that’s the company that’s the best example of using AI to actually create
schitt’s if you will is probably going to be Stitch fix right because they send one skew to your house which is a fixed with five items in it and they’re primarily using AI to select which five items they send to your app.

Scot:
[53:18] Wrinkled her next question
comes from jeweled work and she a skinny leadership or managing through change tactics and then over on the Facebook group I asked for clarification on that if I gave her a couple choices there and she said
you’re more at the corporate level so let’s assume you’re one of these Brands that’s been around for a hundred years this is very much in the news right now where allottees activists are going into the established Brands and brand houses and shaking them up and you know really getting agitated they’re not doing enough direct-to-consumer you seen folks like Campbell’s down 30 40% due to all these changes happening and you know I heard your question is essentially
how did these companies become more Nimble you know you’ve had this guy a hundred year plus world where the consumer didn’t change very much and now they’re changing constantly.
What what do you recommend a brand do to get more nipple.

Jason:
[54:13] Yeah it’s a great question Jill and the real answers if I had a perfect recommendation
I probably wouldn’t be bothering to do this podcast cuz it would make my job so much easier that I’d be you know waiting on an island somewhere because it is a huge challenge in general you see digital native companies are much better at being agile and nimble
then big established Brands and it just so happens in my practice I mainly work with
big established Brands and they all struggle with being at a a speed disadvantage
TD small companies and the one exception is you know that the giant company Amazon is annoyingly.
Add jolyn and Innovative despite their their size in the fact that they’re you know now 20 years old.
So two things to think about here the first is like a big question always comes up is.

[55:07] Ivory Tower Innovation versus Grassroots Innovation right so you know Ivory Tower would be,
let’s set up an innovation lab right you know your target let’s set up an innovation lab you know your Minneapolis wet set up at univation lab in
San Mateo California and let’s hire a bunch of people whose only job is to be Innovative and let them come up with all the new ideas.
And if you’re a store manager in Minnesota you know it’s not your job to be Innovative right and so I having a dedicated focus on Innovation the hope his bees Innovation labs.
Can can be more efficient you know there was a huge Trend in retail towards these labs and.
Target Nordstrom Zappos Walmart you know all we’re opening opening these stand-alone labs.

[55:56] While some retailers definitely still have these Labs I would argue the trend is a little bit against the stand-alone lab so we’ve seen a lot of the retailers including Target Nordstrom.
And a post move away from the dedicated Innovation lab model and so the alternative is.
Create the ability for Innovation to come from the the main line Grassroots employees right into the the Marquee example of this is not a retail for me it’s it’s a Doe B and they had this clever product called.

[56:29] Process called the Adobe Redbox and essentially any employee at Adobe that thinks they have a good idea for a new.
Product or process or or service at Adobe can apply for this thing called in Adobe red box and it’s a Innovation kit.
And it’s all the tools you need to sort of prototype your idea and get it to a level where you can present it.
288 sort of jury of Senior Management at the.
Add Adobe and so it you know it’s pretty clever it has things like a debit card in it that you can use to buy you don’t web hosting services and it has.
You know I’m feeling codes you can get to you know provide to some of your colleagues have them help you with certain things.
And said that the idea is to make it easy for anybody with a good idea anywhere across the the organization to pursue that idea.

[57:30] And so it the moment I see more retailers trying to Foster Innovation through.
Providing processes and tools to their main line employees than I do the Ivory Tower but I certainly seen both work and I’ve seen both fail.
The biggest advice I give to Legacy clients.
To succeed in Innovation is not so much where that Innovation sits in the organization it’s how The Innovation is approached and here like I highly recommend.
Serta imitating the Amazon model right so you know Amazon famous we have this to Pizza teen model in the the premise behind that is.
Hey any project we do we’re going to narrow the scope such that it can be performed by you know a team no larger than could be fed by two pizzas.
So that could be you no one four digit software developer or you know it might be six or seven people in your department.

[58:31] But the idea being.
The way to do Innovation is not to do some Grand pilot that has to integrate with 37 Legacy systems and has to get approval from 18 different departments and requires a team of 40.
And you know by the time you you get an experience to live you will spend so much money and effort that you know if if the experience isn’t successful.
You know you you passed your company of Fortune and even if it is successful like the the business probably you know shifted from the time you started to the time you finish.
The most successful Innovations are when you can you know find gorilla ways to do things scale at and make the the.
Hiwot as independent and distinct from the rest of the organization as possible right and so to me the great example of that is.

[59:23] Amazon Prime now,
you know when they said like hey we want to deliver stuff in one hour they didn’t say all right let’s get a meeting together with the leaders of the Fulfillment center and figure out how we carve off some space in the Fulfillment center and figure it out we,
change all our software in the Fulfillment center to support this one hour delivery and do all these things they they got some guys that said hey we’re going to buy our own you know even though we own all this stuff,
we’re going to buy our own building for this pilot and we’re going to write our own software and we’re going to just keep things as simple and independent as possible get the experience out there in front of the customer as quickly as possible and learn from the customer,
which elements of our idea are valuable and value by the customer and which ones aren’t then we’re going to refine it from there and only after we’ve.
Proven The Innovation and unrefined it are we going to figure out how to integrate it into the rest of the Enterprise so I really like that sort of.
Independence and you know we highly encourage a lot of these big Legacy Brands to sort of adopt a more agile.
Business process so we talked about ad Joel a lot as a development technique technique but it really can be a a business process and you know sort of isolate these these projects as much as possible and make an independent initiative.

Scot:
[1:00:40] That’s awesome so I’m up I come out at from a startup
bad guy perspective I’m on my 4th company I started and like you have worked with a lot of Brands and I think the step a lot of them get wrong is what I would call buying soda
I’ll start doing something kind of innovative like selling director something and then the VP of sales will say woohoo oh hey wait a minute what are we doing I’ve gotten upset
Channel partner that’s upset wrestling direct and then doll the panic in the unwind the whole thing
so before you go down some of the steps you recommended you know I think.

[1:01:17] The key is got to get complete buy-in from the whole management team that this is going to be something they’re there once committed to a book that I I
now that kind of started this discussion is the innovator’s Dilemma. This is kind of a must-read for people interest in this topic in this by Clayton Christensen I will put a link in the show notes and you know what does essentially does it talks about,
how do companies get in this position and why and then it has some cases of the very few companies that have gotten out of this position so it’s really
important to get that buying from everybody because if everyone’s not bought in you’ll get this whole failure cycle of trying to do something really Innovative as a brand and then it gets squashed by people that really aren’t bought in and then
you know there nothing too happens and companies that are large and older is
a lot of ideas get squished because what I call exception base management where you come up with this idea and then to what is start to happen to edge cases well you know
what if you know a you know what if this isn’t profitable what if this and that the other and that.

[1:02:25] Becomes you just get kind of stuck in tar with that you have to have to get everyone bought into taking some risk that the company’s also not used to Basil’s has a really good letter on this stuff about it Amazon where they have
commit to disagree is kind of thing you know so so you know we disagree but let’s try it and see what happens like why not try it.
Go try something and
to that and there’s really good book Jason mention you’re taking some of these ads all kind of Concepts out of software development putting them in your company one of my favorites is called Lean Startup sat is geared towards when you’re starting a company but I think big companies can learn a lot there and it kind of educate you on the languages start upset you know
Facebook kind of famously has said go fast and break stuff and that’s really kind of craving orientation towards not worrying about the exceptions and guessing
put something out there
and take a little risk and then see how customers react to it and then course-correct quickly so the answer to you know what is what you know maybe not and.

[1:03:30] We won’t know until you try so you got to kind of get your culture oriented towards trying stuff rapidly,
iterating versus kind of a 18 month cycle of planning and hand-wringing and getting every little detail done and then putting something out to be agile yet to be able to put something out and fail
I go over and over again the case study there for Amazon that’s classic is the fire phone you know they they put a phone out there there’s a million reasons that would fail and it failed Jason I think they’re the only people that have one
but if they didn’t fail at that Fire Phone
they would have never done Echo because they really wanted to be in the platform World they realized the failure the phone that that was going to be at and then they went all in on Echo and.
That is part of the culture they have is it’s okay to fail just going to do it quickly and inner eight and learn you can’t just kind of like digging infinitely deep hole.

Jason:
[1:04:23] Yeah that’s great advice.
Scot we have a few more a great listener questions but I actually think we are going to have to hold them for our next show because it has happened again we’ve used up the an hour of our listeners very valuable time.
And so if you enjoy the show we certainly would appreciate that that five star review on iTunes if you have anymore questions or follow-ups on these questions please do jump on her Facebook page and drop us a line or hit either of us up on Twitter because we will pick up the remainder of these questions and any new ones in the next show.

Scot:
[1:05:03] Thanks for joining server buddy.

Jason:
[1:05:05] Until next time happy commercing.

Comments

  1. Hi Guys,
    Great show. Thanks for so much great info! Question for you on the sales tax thing? You mention, as of right now, the SCOTUS ruling only effects the current SD law, not other states, BUT, other states will, and have announced new laws that will start soon.

    Question is, Taxjar’s website is saying there are many states that we need to be CURRENTLY reporting to since the SCOTUS ruling? Very confused?

    See this link, scroll way down to What is Economic Nexus, and the map below it? What are your thoughts please? There is so much conflicting information out there, how does one know what to follow?
    https://www.taxjar.com/sales-and-transactions-checker/?utm_source=drip&utm_medium=email&utm_campaign=checker&utm_content=mseg

    Thanks again!

    • Thanks for the question and thanks for listening! First a quick disclaimer, I’m not an attorney and am certainly not your tax attorney, so take my comments with a huge grain of salt.

      I think there are like 8 states that have passed a law to collect out of state salestax under some circumstance. There are a few more states that have passed a law requiring you to report sales, but not collect tax (yet). Many of those laws are currently under litigation, so their status could change in the near future. And of course, many new states will be passing laws modeled after S. Dakota now that the SCOTUS has weighed in on that version.

      Taxjar is excellent, and I’d guess that by default they recommend you take the most conservative approach to tax collection. Only you can judge if/what level of risk is appropriate for your business. IE you could choose to not collect the tax, and challenge the specific state law in court yourself if the state ever tried to enforce on you. Or you could just hope that someone else will challenge it and win, but decide that you’ll just make restitution if a state comes after you. Or you could decide to collect for every state that has passed / passes any kind of law.

      Honestly, if my advice differs from theirs… I’d assume I’m wrong.

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