One area where computers have clearly transformed business is e-commerce, the sale of goods and services through the Web. Sales have reached tens of billions of dollars per year. A few years ago e-commerce meant buying books or music CDs, but now people are buying stoves, automobiles, and everything else over the Web.
Customers like e-commerce Web sites for a number of reasons. The selection of items, for instance, is not limited by what one store in the mall can carry; comparison shopping is quick and easy; and you don't have to leave your home to go shopping.
Almost every major retailer has a Web site. This thinking has gone so far that many physical stores have computers in them to allow customers to access the company Web site. This use of computers is a tacit acknowledgment that the physical store can never provide as extensive a selection of products.
Companies have found an interesting "synergy" between physical stores and e-commerce Web sites. A customer of J. Crew, a clothing retailer, may visit the site, see a good-looking pair of pants at an acceptable price, and then drive to the local J. Crew store to try the pants on. Similarly, a customer browsing the racks at the J. Crew store may find a good-looking pair of pants but need it in a petite size that the store doesn't stock, and then drive home to see if the pants in that size are on the Web site.
While e-commerce is growing every year, it's still a small part of retail sales. The U.S. Commerce Department estimates that in 2004, e-commerce accounted for only about two percent of all retail sales. Even though e-commerce is a small piece of the retail pie, though, companies are working hard to get that piece because the profit potential is so high.
Consider a traditional department store like Macy's or Sears. These stores sell just about everything, aside from groceries and gasoline: housewares, tools, clothes for every member of the family, appliances, jewelry, and so on. The stores are huge, with expensive leases, floors and fixtures that must be cleaned every night, utility bills, and an army of sales associates.
In contrast, consider the purest example of big e-commerce, Amazon. This company grew from a simple Web-only bookstore to a place where you can buy almost everything, just like a department store, including CDs, appliances, sporting goods, clothes, and computers, in addition, of course, to their staple offering of books. Amazon, however, has no stores. Instead, it has an extensive Web site and a set of "fulfillment centers," which are warehouses where employees find the items customers order on the shelves and ship them out. One can imagine that the rent on a warehouse is a fraction of the rent on a department store.
One problem with e-commerce is taxation. Courts have ruled that mail-order business cannot be subject to state sales taxes as long as the company doesn't have a physical presence in that state, and Internet retailers have operated under this rule.
Products from Amazon may not be subject to the sales taxes that a purchase from Sears would be because Sears has a store in every state. Some traditional retailers have complained that this unfairly makes their products more expensive to consumers. After all, Sears actually employs local people in each of its stores, providing a community benefit beyond the taxes it collects, while Amazon has no employees at all in most states. State governments, of course, are upset because they are losing tax revenue.
Some states have tried to introduce a "use tax," with each taxpayer expected to track his or her own Internet and mail-order purchases, compute the tax they owe the state, and then add that amount to their tax bill when it comes time to file a tax return. Predictably, this method has not been successful. It's too easy for filers to simply not pay the use tax because there's no way for the state to know how much anyone should pay. Even if a taxpayer wants to pay the tax, it would require a diligent effort to track all of one's purchases. Sales taxes work because they place the burden of tax collection on the seller instead of the buyer.
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