I think it is fascinating that (local) governments try to keep traditional retailer alive, at the expense of online-first stores. This morning I started my day with my daily news round, and could not believe what I read about the UK-goverment’s plans to tax online retailers, additionally for the sole reason that they do not own brick and mortar stores.
Highly doubt that this makes any sense at all and this form of “market protectionism” misses the point of the digital market evolution we are all a part of, entirely.
A group of digital retailer in the UK have created a shared lobby to promote their cause. The group of six (Asos, Bohoo, Ocado, AO.com, Gymshark and the Hut Group), aim to create a strong front and differentiate themselves from international online players (like Amazon and Wish).
As Laura Onita, retail editor at the Telegraph, reports on Twitter the government has come under increased pressure from traditional retailer, who believe additional taxes would even the playing field. As she puts it: “the move comes as the government face is pressure from traditional brick and mortar retailers to impose extra taxes on more online focused rivals.”
The British parliament are actively discussing a 2% tax increase for pure online players, who sell goods in the UK
The lobby group is concerned that this will negatively affect their sales. Furthermore, it is <unfair> to tax local (online) retailer additionally, even though their taxes are paid in full in the UK.
Taxing online sales and cutting the multiplier would greatly benefit retailers such as Primark, Aldi and B&M, which do not sell online but have large store estates.Financial Times
The challenge is that traditional retailer have come under an increased pressure in the last few years (and decades). The covid-19 pandemic has not made it any easier for those who have had to keep their stores closed; especially for those who rely too heavily on their brick and mortar stores, as opposed to having embraced an omni-channel marketing and sales strategy.
- Would a tax negatively affect the growth of UK pure online players in the long run? Probably not.
- Will international players draw back from the UK market? Highly unlikely.
- How will customers react to these change, will they start to shop abroad to save 2% on their purchases? Some might, but it is highly unlikely.
The only real losers in this scenario are the end consumers, in my opinion. I can fully understand that taxes on goods and services should be paid in the country where the products are delivered – as it is the case in the EU, and UK as well. The UK continue to provide sufficient loopholes for tax evaders, and quick frankly this is what should probably be addressed more than to punish those who provide the much needed infrastructure for a digital future.
Invest in the future
The group of lobbyists have pointed out that they will collectively invest 1 billion British pounds in the their growth and create >10.000 jobs in 2021, in the UK alone. By supporting online players, countries directly invest in a digital future; a new way of working, shopping and interacting with customers is already upon us. However, legislators need to acknowledge the movement and create room for innovation, instead of stifling growth, unnaturally.
More and more questions
As CEO of GANDT Ventures, an international consulting firm based in Zürich, Munich and Hamburg, the questions I receive from clients regarding internationalization to the UK, increase. This has nothing to do with the market potential – many European retail want to set up shop in the UK – but a lack of transparency, and growing levels of market insecurity.
On the one hand I believe a pure online player lobby sort of misses the point of the conversation, as it is not about who pays taxes, but where. On the other, it is great to see that they are standing up for themselves. Many pure online players are (still) seen as an unnecessary “evil”. However, it is these companies that drive change and market innovation.
Not to forget, it might very well be, that these digital natives will start to build up an offline presence in the future, too. There is no online vs offline here, the marketing and distribution channels simply evolve. This change should be embraced, instead of stalled through unnecessary regulations and lobby-work.
Also published on Medium.