* Best Buy, research data underscore hit to Amazon
* Street expects strong holiday but may be underestimating
* Quarterly results due Jan 29
By Alistair Barr
SAN FRANCISCO, Jan 17 Amazon.com Inc's
unfamiliar role as tax collector may have dented its crucial
holiday quarter by reducing the online retail giant's
longstanding price advantage over its rivals in several major
Sales growth in California for merchants who sold their
goods via Amazon lagged growth in the rest of the country after
the company began collecting state sales tax there on Sept. 15,
according to an analysis by e-commerce firm ChannelAdvisor.
And Best Buy Co, Amazon's arch-rival in high-priced
consumer electronics, saw holiday online sales increase in the
three states where Amazon started collecting sales tax:
California, Texas, and Pennsylvania.
"There was a little softness in states where Amazon is now
collecting sales tax," said R.J. Hottovy, a Morningstar analyst.
"It levels the playing field for brick-and-mortar retailers."
Critics of Amazon have long railed against what they deem an
unfair advantage, because for years most other retailers have
had to collect state sales tax on online sales because they
operate physical stores in those states.
But many states, hungry for extra revenue to plug yawning
deficits following the financial crisis, introduced laws
requiring that Internet-only retailers also collect sales tax.
Brick-and-mortar retailers hope the requirement will trim
Amazon's price advantage and eventually help them recoup lost
Amazon's fourth-quarter results - due on Jan. 29 - should
provide clues as to whether U.S. consumers changed their
shopping habits when faced with higher taxes on their purchases.
"This makes Amazon equal to everyone else. They no longer
have that sales tax advantage," said Anne Zybowski, vice
president of retail insights at Kantar Retail. "If this had
happened to Amazon when they were just a bookseller years ago,
they may not be as big as they are now."
Wall Street on the whole is betting that online retailers
like Amazon and eBay Inc fared better than rivals
rooted in the physical world. On Wednesday eBay posted
marginally better-than-expected results for the fourth quarter.
But some analysts say investors may not appreciate the
extent to which revenues of Amazon's competitors might have been
suppressed by the sales tax effect. Amazon does not break out
sales in individual states or markets.
Amazon began collecting sales tax of 7.25 percent to 9.75
percent in California about two weeks before the start of the
fourth quarter. It started collecting sales tax in Pennsylvania
in September, and in Texas in July.
ChannelAdvisor, which helps merchants boost sales online,
analyzed clients' sales growth on Amazon in California and in
the rest of the country before and after the Golden State's
internet sales tax kicked in.
From July through early September, sales growth in
California for Amazon clients was 5 percent to 10 percent higher
than in the rest of the United States. But the week before the
Sept. 15 start of the tax, sales growth spiked as much as 70
percent above growth in the rest of the country as buyers rushed
to beat the deadline.
"The surge before the tax went into effect was much larger
than I thought it would be," said Scot Wingo, chief executive of
After Sept. 15, California sales growth rose at the same
pace as the rest of the country. But in early November, sales
growth slipped as much as 10 percent below the rest of the
nation, ChannelAdvisor data showed.
During one of the busiest holiday periods, from late
November to early December, sales growth dipped further in
California. Only toward the end of the holiday period did client
sales growth in California recover, the data showed.
EBay, another Amazon rival, is an investor in
ChannelAdvisor. Wingo also owned Amazon shares but sold them in
the fourth quarter for personal tax reasons, he said.
The California tax impact was particularly pronounced on
items priced at $200 to $250, Wingo said.
Best Buy's solid showing during the holidays may provide
another clue to the tax's impact.
Overall, Best Buy reported better-than-expected holiday
sales last week.
Despite the tax changes, Amazon's consumer electronics
prices were still at least 5 percent below Best Buy's during the
holiday season, Kantar's Zybowski said. But Best Buy may have
benefited from even a small change in this area.
"Particularly in consumer electronics, any narrowing of
Amazon's price advantage at the margin is important because Best
Buy brings service and other shopper benefits to the category,"
An Amazon spokesman declined to comment when asked if the
company saw an impact on fourth-quarter sales from the
collection of sales tax in the three states.
In the past, Amazon executives have said there was little or
no impact from such changes in other regions.
PRICE CUTS BY AMAZON?
Several analysts said that shoppers use Amazon not just
because they can find a bargain, but also because of its vast
selection, convenience, fast shipping and returns. Regardless,
the retailer wasted no time in discounting to try to safeguard
Amazon probably lowered prices 8 percent to 9 percent on
items most affected by this, although it is tricky to separate
such reductions from the usual holiday season promotions that
were also happening, Wingo said.
Extra price competition may dent Amazon's profitability in
the fourth quarter, Morningstar's Hottovy said.
Amazon is expected to report revenue of $22.3 billion,
according to Thomson Reuters I/B/E/S.
"Amazon was wise to hold on to the sales tax advantage as
long as they did," said Sucharita Mulpuru, an analyst at
Forrester Research. "They obviously felt that they were strong
enough now, with enough other profit pools, that acquiescing to
state authorities would not have an adverse impact on their