Feature
May
26
E-Drain and E-Power: The Virtual Vacuum’s Effect on the Local Economy
by Woody Falgoux, Owner of Cherry Books
For many local merchants, their primary competitor is a store they can’t physically visit. It is bigger than a big box, more impersonal than a mannequin and located in another realm. It is an ever-burgeoning cyber monster that steers profits away from their bank accounts and blocks local revenue from reaching the local economy. It is the aptly named World Wide Web.
For quite some time, online stores have been the number one challenger to many local businesses, including Thibodaux’s Hofman Music. Since the late 1990s, Hofman’s manager and part-owner Scott Hoffmann has watched the web attract a growing number of his clientele, especially parents buying school band instruments for their children.
In retail competition, the Internet has a mathematical advantage—many of its ecommerce sites do not collect sales taxes. The lack of a sales tax (8% of the sales price in Thibodaux) is particularly significant when it comes to a three or four-figure band instrument. Given the savings, local shoppers might overlook the fact that sales tax pumps money back into their community, with half the tax going to the state and half going to local governments.
Hoffmann points out that the local half of his store’s monthly sales tax check is made payable to the Lafourche Parish School Board. Surprisingly, some of the people who benefit from this check have directed business away from Hofman Music. At times, Hoffmann has learned of school band directors recommending that students buy their instruments from the web.
“Some band directors think the prices are cheaper, but we do compete with Internet prices,” said Hoffmann. “When you have a direct source handing out out-of-parish websites, and the sales taxes that we collect here at the register pays for their salaries, I don’t see how the school employees can’t see it. You just shake your head.
E-fairness: the Congressional and Local Solutions
All across America there is much head shaking over sales tax inequality. It has resulted in a movement called “E-fairness,” which “does not call for new tax laws,” according to the American Booksellers Association, but rather equitable enforcement of existing state tax laws. Tax laws in the 45 states that collect sales tax stipulate that when a retailer has any physical presence in the state, whether it be a retail store, warehouse, office or sales agent, the company must collect and remit sales tax on purchases made by customers in those states.
“However, some online retailers with affiliates in these states are not collecting sales tax, while their in-state competitors are.”
Internet stores without a presence in a state do not have to collect sales tax for that state because of a 1992 U.S. Supreme Court decision. The Court’s ruling, though, has only fueled more debate on the issue, which has recently heightened and focused more directly on the e-tailer Amazon.com. In a March 17, 2011 editorial entitled “Amazon vs. The States,” the New York Times wrote, “It never made sense to exempt online retailers from collecting sales tax. It’s ridiculous now when so many states are in deep fiscal trouble. Illinois estimates that it is losing more than $150 million a year in uncollected taxes; California is losing an estimated $300 million a year. That would cover more than half the planned cuts for the University of California system."
It’s good news that states are using new legal tools to force Internet retailers to do what every other retailer must do. It is disappointing to see Amazon.com fight back.
After detailing how Amazon has convinced some states with an Amazon warehouse to not require the e-tailer to collect taxes, the New York Times concluded, “The best outcome would be for Congress to pass legislation requiring all retailers, online and off, to collect sales taxes everywhere they are due.”
Of course, another solution would be for locals to take matters into their own hands and buy their goods from Lafourche-Terrebonne stores.
The Multiplier Effect of Shopping at Local Independents
As merchants like Hoffmann note, Hofman Music and its local independent brethren contribute much more than sales tax revenue. According to the A.B.A., the dollar difference in community impact is substantial. When a shopper spends $100 at a local independent retailer like Hofman Music, JuJu’s or Queeny’s Boutique, $68 is reinvested in the community; that reinvestment is reduced to $43 when the same money is spent at a chain store; and drops all the way to $0 when spent online.
In other words, buying a banjo or a book from Amazon.com means the money travels digitally to the company’s headquarters in Seattle, Washington, where it is re-circulated around the Pacific Northwest. On the other hand, when a reader of this magazine purchases a product from any of PoV’s advertisers, the reader’s money largely stays on the bayou. Notably, PoV is entirely funded by local independent businesses.
And an independent’s impact goes beyond dollars and cents. Hofman Music’s founders and majority owners, Scott’s uncle and aunt, Lindy and Mary Anne Hoffman, have been contributing to local charitable causes since they founded the business in 1958. Among many other marks they’ve made on local music, they sponsor an annual music award given by the Thibodaux Chamber of Commerce. More generally, a local businessman like Lindy Hoffmann can join the Rotary Club and contribute to his church, whereas executives at Amazon aren’t likely to do much volunteer work on the bayou.
“We donate band folders and yearly school calendars to the seven parishes we service,” says Scott Hoffmann. “We sponsor trophies for marching festivals. We do what we can.”
Hoffmann notes that in the past few years, reduced sales have meant Hofman Music hasn’t been able to do quite as much. For instance, the store used to sponsor refreshments at the marching festivals, but such a donation is no longer in its budget.
The real loss, Hoffmann says, is when the customer unknowingly buys an inferior instrument online. Hofman Music takes pride in servicing the instruments it sells but cannot effectively service “no-name” instruments purchased on the web. “In years past, we would try to fix these horns that were bought online,” says Hoffmann. “But the repairs wouldn’t last because the metals were so soft. If you tried to do a solder joint on a trumpet or trombone, the metal was so soft the solder wouldn’t hold, and it would just pop off a few days later. So we don’t service them anymore.”
Hoffmann has also witnessed the effect of an inferior instrument on the quality of music. “Music is like learning another language,” Hoffmann says. “When you play a ‘C,’ it’s supposed to come out a ‘C,’ but (with an inferior instrument) it can’t. It’s like going to buy a lawnmower without a blade. It won’t work.”
Local” E-Commerce
Even with the problems associated with buying an instrument online, Scott Hoffmann has been researching ways of adding e-commerce, but in the music business, the challenges are daunting. Because Hofman Music insists on providing only quality instruments, most of its manufacturers will not permit a store to e-sell their products unless the store agrees to stock every instrument in every model and color.
While Hofman Music explores its e-options, the barriers to e-entry aren’t as daunting for every local retailer. In the book business, it has suddenly become easier to be a book e-tailer. For instance, in a partnership with the A.B.A. and Google, Thibodaux’s Cherry Books now has full-blown e-commerce, i.e. the ability to sell bound books, e-books and other store items like toys over the web through cherry-books.com.
E-books can be purchased in minutes from the Cherry Books site using most e-readers including the iPad, iPhone, Android, Nook, Kobo & Sony Reader, but excluding the Kindle, which only permits one to buy from local revenue-draining Amazon. Additionally, cherry-books.com customers can order bound books for pickup at the Canal Boulevard store or have them shipped to their homes or to anywhere in the United States.
Honestly, unlike Hofman Music, which is still a thriving business, Cherry Books needs ecommerce to survive. Store management has realized that too many of Cherry Books’ existing and potential customers are e-buying books, whether it’s because they live in a more remote area and have trouble making it to the store, are too busy or simply enjoy the convenience of at home-buying and delivery.
“We had to stay in tune with the changing technology,” said Cherry Books Manager Felicia Zenthoefer. “We can now offer more than an Internet-only company—online and in-store sales. Our new slogan is ‘Keep Your Book Bucks on the Bayou.’”
The bottom line is ensuring that independent businesses continue to maintain a presence in the bayou region. For more than a half century, Hofman Music has not only sold and serviced quality instruments, but has done everything from installing intricate sound systems in cavernous churches to teaching music lessons to people of all ages. For a much shorter existence, Cherry Books has held poetry readings, book club discussions and given the public access free access to authors of national acclaim.
As chain stores homogenize America and online shops rake in local dollars while adding nothing to the local landscape, independents shape the community’s character and generate tax revenue and profits that literally build the bayou region’s roads, bridges, levees and schools. Whether in a physical or virtual store, it pays and re-pays to shop local.
