The Great local dive shop vs. online debate

[kpauley]

In Washington State we have sales tax and so if you buy from LP you don't have to pay it. This can be a big deal on large ticket items. So a 30% difference with 8.9% tacked on can be enough to tip the scales toward LP.

Personally I think you went wrong in staying past closing to help them. Yes it seems like good service but you will end up resenting it and in the long run burning out and leaving. If you like what you are doing don't be afraid to set boundaries and say no to protect yourself from burn out. When I'm pressed to work overtime I usually beg off by saying I have to pick my GF up from work or something.



(before flaming, please note that I have purchased two complete kits locally as well as having just purchased two drysuits locally. To date I have purchased one underwater laser pointer online and that was sort of an impulse purchase. We need all the tax dollars in our state as it is and the LDS usually try to give pretty good deals if you shop at the annual sales they have every month.)

 

[Rick Murchison]

kpauley once bubbled...
In Washington State we have sales tax and so if you buy from LP you don't have to pay it. This can be a big deal on large ticket items. So a 30% difference with 8.9% tacked on can be enough to tip the scales toward LP.

This nut's a little harder to crack. How can a shop stay in business when the tax laws give the out-of-state/internet/mail order competition a 15% advantage (sales tax is only one of several taxes the local retailer has to collect in sales that the online marketer doesn't - the customer just doesn't get to see the others on the invoice)?
Put another way, how do you educate the general public and their taxing representatives that 15% of nothing is less than 5% of something?
Rick

 

[Rick Murchison]

kpauley once bubbled...
When I'm pressed to work overtime I usually beg off by saying I have to pick my GF up from work or something.

While your point about burnout is well intentioned and spot on, if you don't have to pick up your GF don't lie about it. Just say "I'm sorry, sir, but I have to go now." It's none of their busines why you have to go, and having to go for your own mental health is just fine - and honest. Making up an excuse is, on the other hand, dishonest and ultimately bad for your mental health - and will contribute to burnout just as much as staying late and getting mined for information.
Rick

 

[Genesis]

Other than sales tax, they are there for all firms, whether you buy mail order (or on the internet) or locally.

The state in which the business is located may affect the RATE, but not the presence, of such taxes. Some states are cheaper than others to operate in, but all have those hidden taxes, so a person buying through the internet is not able to "evade" them - he's just paying them to a different taxing authority.

Sales tax, on the other hand, is a problem that the local retailer cannot solve. States that have punitively-high sales taxes (nearly 9% qualifies!) are shooting themselves in the foot and asking their citizens to go around the system whenever possible.

There have been attempts to "mine" retailer sales info from other states - California and a few other states have tried to sue large mail order houses to subpoena their sales records in an attempt to go after their own citizens, or force out-state retailers to collect for them - but that has fallen flat. At least so far. (Legally, you have to pay "use tax" if you buy from out of state. In reality, other than businesses, which are typically required to file monthly or quarterly sales and use tax returns, nobody does.)

The real solution to this is for states to collect their required revenue from sources that are neither so horribly punitive nor are easy to evade. If the typical sales tax was 6% or so (like it is here) it would be less profitable for people to go around it. Not all that long ago Michigan was 4%, which was almost not worth it at all (they've gotten worse though)

Frankly, sales tax and shipping tend to balance out for many items, especially if the state is reasonable about their tax amounts. Its only when states get punitive with the sales tax that shipping expense - not paid on a local sale - is vastly cheaper. The solution to that is to beat your state house over the head with a Clue-By-4 (in the form of your VOTE!) to fix the overspending - and overtaxing.

 

[anthem]

Rick Murchison once bubbled...

This nut's a little harder to crack. How can a shop stay in business when the tax laws give the out-of-state/internet/mail order competition a 15% advantage (sales tax is only one of several taxes the local retailer has to collect in sales that the online marketer doesn't - the customer just doesn't get to see the others on the invoice)?
Put another way, how do you educate the general public and their taxing representatives that 15% of nothing is less than 5% of something?
Rick

Rick, this nut is a LOT harder to crack . It's not just the whole internet taxing issue that is at play here. . . .

That being said, what most people don't know (and companies do), is that you are responsible for paying tax on the product you buy regardless of where you got it from(locally or out of state). That means, just because the entity you purchased from doesn't do business(have domain) in your state (and doesn't file sales tax there) - doesn't absolve your responsibility to do so. It's enforced quite regularly at the state level for businesses, but most individuals ignore that statute. Remember, the supreme court has said - its perfectly legit to lower/minimize your tax burden, but illegal to avoid it. In trying to escape the sales tax, one is actually now /suppose/ to pay the 'use tax' to your state. Granted, I know it rarely happens, but its there. . .

 

[Rick Murchison]

Genesis once bubbled...
Other than sales tax, they are there for all firms, whether you buy mail order (or on the internet) or locally.
The state in which the business is located may affect the RATE, but not the presence, of such taxes.

A bit of a red herring here - while there are taxes on warehousing (mail-order/internet) operations, they are never even close to the taxes levied on storefront businesses.

Frankly, sales tax and shipping tend to balance out for many items

Another red herring - the shipping to get the goods to the shop must be added to the cost of goods sold (and the price), so the retailer has to collect both, while the on-line vendor can tack it on as a line item and make his price appear to be lower... "What about the shipping to the on-line vendor?" You ask... there are two reasons it's much less than the retailer pays. One is volume, and the other.... well, there are ways to run a major on-line business without paying a dime in shipping, 'cause your inventory is actually held at the wholesalers' or even the manufacturers' warehouses and blind shipped directly from there, with the customer billed for it. This also avoids pesky things like all those property taxes on inventory, storefront taxes etc etc.
"Fair" isn't the issue here... this way of doing business, where the internet vendor is really just an information gatherer and collater and order taker and purchasing agent for the customer and salesman for the manufacturer and money handler who just passes the customer's money through to the manufacturer less his cut for getting customer and manufacturer connected - who doesn't need to know squat about the products and doesn't need to provide squat in the way of information or support or service - thereby eliminating all the expenses involved in all those things associated with retail and therefore able to make a living providing products at a far lower price to the consumer... combined with consumers who are increasingly willing to buy products with zero service attached... well, that's the wave of the future, the business of business in the twenty first century.
Whether we like it or not, retail as we know it is in it's last gasp, and shops like those in the Scuba industry are going to have to start charging for their services - and the showroom will have nothing more than a sample or two (and that for only a while, until totally replaced with "virtual" inventory). You will no longer talk to a friendly salesman to gather information, you'll "hire a consultant" to provide the information at a price.
Don't believe it's coming to that? Hide & watch!
Rick

 

[Genesis]

is alive and well.

What's not doing so well is gouging people.

WalMart is doing quite well. So is Lowes. So is Home Depot. So is Target.

Anyone who thinks that a retail operation, mail order or otherwise, is surviving on 1-5% markups has had too may hits off the crack pipe.

LP, DiveInn and others are not selling at 1% or 5% over their cost. They're selling at a reasonably normal markup - 20% or more, I'd wager. LP, in particularly, DOES stock product and DOES have a real, honest-to-God storefront. With that come REAL costs. To argue that these guys are all "internet retailers" and thus avoid those real costs and taxes is false Rick, particularly in the case of LP, which is where most of the bullets are aimed by the LDS community.

The LDS is selling at 40-60% or more above LP's retail price. You can't use LP as a "cost" number, since they obviously wouldn't be in business for long if they were selling at cost; they have expenses too. And NY, by the way, has one of the highest imputed cost structures (in the form of taxes and such) for businesses anywhere in the United States.

There are a number of tax structures that states often employ that are abominations and offensive to ordinary sensibilities. Property tax on inventory is one of those (punishing retailers for keeping stock for consumers to buy?!), but by no means the only one.

Yes, there are costs on doing business. So what?

Big-box retailers are able to amortize some of those costs over more product sold than small-box retailers. This is a surprise? No, it should not be. But is the difference as enormous as some in the dive industry try to make it sound? No, its not.

I was a "small box" retailer, and a service seller, for more than a decade. We could not and did not try to compete with the PC Connections and the CDWs of the world on hardware. We sold solutions to problems, not just products - at least most of the time. We found a way not only to stay in business, but to prosper doing so. And not once did I pull some kind of garbage on someone about how we "couldn't" sell below some price due to a dealer agreement - I never entered into one, although I had people try. If necessary I sourced product around "authorized" channels - it almost never WAS necessary though. To the extent that manufacturers and competitors truly did things that were anticompetitive, and harmful to the consumer's interest, I exposed them - in public. It was surprising how fast people would backpedal from supposedly "iron clad" positions when faced with such a thing, and how many SALES I got from consumers who, once informed, were quite happy to find a vendor who was interested in BOTH the buyer and seller having their best interest served. I was extremely aggressive about sourcing my product and what I paid for it. Nonetheless, we often lost sales on hardware to mail order houses. I didn't care - we made a fair profit on everything we sold, and didn't try to cross-subsidize one line with another - so if you wanted to buy part of a total package elsewhere, that was no skin off my nose, and I had no reason to be "offended."

Part of the problem here appears to be that shops have, instead of being aggressive about sourcing product and thereby not needing to play the cross-subsidy game, instead RELY on it to stay open. Mike has documented some of these, such as a shop that can't discount hardware more than 10% but will throw in a "free" class - or nearly "free" - thereby cross-subsidizing the hardware and debasing the value of training in the entire local area - including HIS! That creates all kinds of distortions in the marketplace and makes for a lot of ill will when someone doesn't play along with your predetermined plan.

If your training class at $200 contains an implicit $200 subsidy from equipment sales, the guy who buys the hardware from LP might cause you to take a LOSS on the class you sell him! But who's fault is that? Its YOURS (the dive shop owners), because you designed a system that was unbundled and yet contained implicit cross-subsidies. At least Mike's competitor is HONEST about it, in that HIS cross-subsidy is clearly visible (buy $1,000 in MSRP of hardware, get a $500 class for $200, thereby effectively getting a 30% discount on the gear.)

An intelligent consumer SHOULD figure this out and SHOULD cherry-pick - you gave them EVERY opportunity to do so, now you gripe and whine when they do the intelligent thing?

Its time for the LDS folks to get off their high horses. Get rid of the cross-subsidies, start being aggressive about sourcing your product and its cost, and sell at a fair mark-up. If you do that then you will be within 10-15% of the LPs and DiveInns on price, and you'll find that suddenly the argument about "local service" actually DOES have some value.

I'll gladly pay an extra $50-75 on a $500 purchase to buy locally and support a local shop, especially if they have a good attitude to go along with it.

I will NOT pay an extra $400, and neither will anyone else once they find out that you can save that $400. The shop's current attempts to discredit the internet vendors with lies and attempted punishment of consumers who buy there just adds insult to the equation and drives people away.

 

[MikeFerrara]

Your right Rick. Just yesterday I saw Zeagle regulators on LP for like ten dollars more than what I pay for them. We're starting online sales but I don't see how we will ever come close to those prices. If I can stay in business with markups like that for that kind of money nobody will get my time. For a $10 markup the transaction is between them and the computer.

I'm all for it though. Let gear be a commodity but lets charge what out time is really worth when we do service, teach or consult. I spend many many hours telling folks all I know about equipment and many of them buy just what I recommend but they buy it online. We could put a computer on the floor and we could consult and order right there. The pictures online is what they will se and make their selection from. Charge by the hour. Given the return and the length of time I have to hold an item before I sell it my inventory on the floor is going down. I am selling fewer and fewer brands. Every April I pay property tax on inventory. I have stuff I have already been taxed on multiple times.

The manufacturers are trying to kill us. The government is trying to kill us and divers think we're getting rich ripping them off. What a joke.

Anybody want to buy a store?

 

[MikeFerrara]

cyklon_300 once bubbled...
a big group 'awwwww' for the LDS which:

has brain-dead sales staff who give out bogus info instead of saying they don't know the answer to your questions

has staff that can't negotiate any prices until the owner comes back from the Red Sea or whereever...

never has what you are looking for, but can order it

thinks 200+% markup is fair

is 'sure' I want to go to Coz for my next vacation

never bothers to consider that a customer might have more experience than OW class

bad mouths equipment they don't carry

There are over a DOZEN local shops to choose from here, exactly TWO give me reasons to do business with them.

A big group AWWWWW for you. There is nothing in a dive shop with a 200% mark up. What is the markup on a loaf of bread or a steak 1000%? Asking price is determined is by cost which includes overhead. With the size of our walk in market we can't meet overhead.

There are online prices lower than what we pay. I don't know how they do it but I can't touch it. Now, I don't blame you for taking advantage of it but don't think or pretend that you know anything about what is going on. Especially when you have determined in your imagination that the LDS is getting rich screwing you.

 

[Genesis]

your example of Zeagle is simply not what it looks like.

LP is not selling them at $10 under cost, or $10 over cost either. They're making their 20% - those guys have a REAL storefront and REAL retail expenses, just like you do. They have a bigger box, and more volume, and thus the amortization is lower on each product, but its still there. There's no way they're surviving on a 1% operating margin.

I used to see this all the time. We used to see CISCO routers on the "online" sites at UNDER my cost from CISCO! Did this mean that someone was selling at a loss? No, it meant they were a better buyer than I was, and I needed to get out my hammer and Clue-by-4 and go after my rep (or in some cases the parent company) with a vengence If the Clue-by-4 was unsuccessful then I needed to find alternative product sources - and often, I did exactly that.

To those who say that they can't source from these other places - horsefeathers. You most certainly can. There is nothing preventing you from sourcing product any way you are able, and selling it. If you're not an "authorized" dealer for a given brand then you can't say you are, but that you aren't "blessed" doesn't mean you can't sell "X". It just means you can't make a claim that isn't true. If you own it you can sell it at the most basic level.

Manufacturers are not your friends. That much you have right. The guy with the checkbook is always the one you pay attention to - the rest of running a successful business is all about controlling COSTS.

LP is successful because they refuse to play the game. They recognize, correctly so, that they can sell anything they darn well want to - its working out the supply that takes their efforts, and they apply themselves very, very well in that area.

The LDS can play in this game if they want to. Doing so requires abandoning fealty to all but two things - costs and customers.