Debunking E-Commerce Myths
We’ve recently heard of fake news stories, hoaxes, and fabricated plots that have permeated headlines lately—and, unfortunately, the negative consequences that some have caused.
One such fictitious headline that’s running rampant is “the death of the shopping mall” and countless more tales of online sales putting brick-and-mortar stores out of business. But the reality is that the in-store vs. online struggle is not quite the battle that you probably think it is. In fact, physical stores continue to dominate retail sales.
So with the proliferation of fake news stories, here are a few facts to debunk these e-commerce myths and demonstrate the strength of the shopping center industry.
In-store retail sales accounts for $4.2 trillion or 90.7% of the market. A common perception is that online giants, such as Amazon, dwarf brick-and-mortar competition, but the reality is that Amazon is still a small percentage of the overall market. Online-only retailers represent merely about 3.5% of all U.S. retail sales.
Research also shows that 78% of consumers prefer to shop in-store, and spend significantly more per month in a physical store than online. We’re also seeing that omni-channel retailing is actually an enhancement to brick-and-mortar stores. E-commerce and other technological advances are improving the brick-and-mortar shopping experience and boosting sales at physical stores. 93.4% of all retail sales owe all or part of sales to a brick-and-mortar presence.
These are all encouraging statistics that confirm the shopping center industry is thriving, and the rise of technology and e-commerce is not going to change that. But we do need to change our thought process. Industry professionals and supporters need to advocate for our shopping centers and educate the consumer. According to one of my industry colleagues, “The consumer needs to be told that bricks and mortar is here to stay because if you keep telling the consumer it’s dead, the consumer will think it’s dead and start shopping online.”
Our friends at ICSC (International Council of Shopping Centers) have recently drafted several editorial pieces that have appeared in national news publications such as The Wall Street Journal. We are grateful for the leadership of Tom McGee and his team to help this business create our own sources of credible information, and to educate consumers on how vital the shopping center industry is, to both them and our entire country. Read the full articles “A Talk With Tom McGee” and “E-Commerce and Physical Stores Are Friends with a Common Purpose.”
-Marty
Beware the Broad Brush
There has been much debate in the media this week about Donald Trump’s taxes and the need for Congress to overhaul America’s tax system. In yesterday’s editorial debate of the USA Today, the editorial board makes its point for real estate tax policy reform and the overly generous tax benefits received by commercial real estate property owners.
The opposing viewpoint, authored by Real Estate Roundtable President and CEO, Jeff DeBoer, emphasizes that all business investments, including real estate, be allowed to recover its capital investment cost through depreciation and amortization. He goes on to point out that it is irresponsible to specifically target the tax structure of the real estate industry, which accounts for a large percentage of America’s jobs and economic activity.
The current value of the US commercial real estate investment is approximately $6.0 trillion, leveraged conservatively at approximately 55% (over $2.7 trillion of equity; $3.3 trillion of debt). This investment is responsible for billions of dollars in economic activity, supports approximately 9 million American jobs, and contributes 13% of the nation’s gross domestic product. Real estate activity accounts for nearly 25% of the taxes collected at all levels of government, including income, property and sales taxes. Property taxes alone constitute 40% of the state and local tax base. Taxes derived from real estate ownership and transfer represent the largest source, which in some cases, is approximately 70% of local tax revenues, helping to pay for schools, roads, law enforcement and other essential public services.
Further, the US real estate industry is an inherently domestic product that cannot be offshored through inversions or other tax schemes. If Congress does take on Tax Reform in 2017, it should be noted that much of our country’s real estate investment is made locally by individuals seeking solid, long-term returns with a desire to improve their neighborhoods and serve the communities in which they live.
Let’s not use Mr. Trump’s personal tax situation as a means to hurt our local communities and our nation’s economy by using a broad brush approach!
Amazon Leads the Way in E-fairness!
Alabama becomes 29th state to collect sales taxes from online giant
For decades, brick-and-mortar stores have been fighting for a level playing field with their on-line rivals who are not required to charge sales tax. To enact a little e-fairness, the state of Alabama passed the Alabama Simplified Use Tax Remittance Program, which allows online retailers that do not have operations within the state to collect, report and distribute an 8% sales tax. The on-line tax rate is still lower than its brick-and-mortar rivals who are generally closer to 10%. Since the program’s inception in October 2015, the state has received nearly $3 million in its general fund from 52 on-line retailers.
It was recently announced that Amazon, the largest e-commerce company in the world, has enrolled in Alabama’s state program and will begin distributing funds to the Alabama Department of Revenue monthly. Beginning on November 1st, Alabama will become the 29th state to collect sales taxes from Amazon.
Alabama’s Commissioner of Revenue, Julie Magee, is confident more on-line companies will sign up and expects to see a $40 to $50 million influx of tax funds by 2017 with “substantial” increases by 2018 and beyond. She further noted that 75% of the revenue goes to the state’s general fund, with the remaining balance to be split between cities and counties across the state.
As Alabama’s Government Relations Chair for the International Council of Shopping Centers (ICSC), I am thrilled to hear that Amazon will be participating in Alabama’s tax remittance program and like Ms. Magee, I too believe other on-line retailers will follow their lead. According to recent studies, it is estimated that Alabama is losing upwards of $500 million per year in uncollected sales tax from remote sales.
The shopping center industry is essential to state and local economic development – as a significant job creator, driver of GDP and critical revenue source for the communities they serve through the collection of sales taxes and the payment of property taxes.
In Alabama there are nearly 113.5 million square feet of shopping center space across 1,718 properties that directly employs over 200,000 people or 9.5% of the total state employment. These centers account for close to $32 billion in annual sales and add approximately $1.3 billion in state sales tax revenue.
An annual sales tax revenue of $1.3 billion for brick-and-mortar retail versus $40 to $50 million for on-line retail tells me we have a ways to go to level the playing field, but this is a great start. I commend Amazon for leading the effort!
Louisiana Continues to be Recognized in National Rankings
As the International Council of Shopping Center’s (ICSC’s) State Director for Louisiana, I recently contributed an article for our Quarterly Membership Newsletter that I’d like to share:
Louisiana State Director’s Message – Summer 2015
I have written many times in recent newsletters about Louisiana’s economic development growth and I can’t help myself but to continue to report the good news. Our State continues to be on an unprecedented roll for economic growth and diversification that is really changing our trajectory in a way that is having extreme benefits on our industry, our career, our families and our long term well-being. The progress and growth is not going unnoticed, this summer’s publications have bestowed some significant rankings and milestones.
For the 6th straight year, Southern Business and Development has ranked Louisiana #1 among Southern states for attracting the most significant capital investment and job-creation projects per million residents. In the State of the Year category, Louisiana earned honorable mention. While not receiving State of the Year this year, Louisiana has earned State or Co-State of the Year honors in five of the past seven years. In addition our cities are being recognized individually as well.
- 2015 Small Market of the Year (Pop < 250K) – Lake Charles
- Honorable Mention – Houma-Thibodaux
- 2015 Major Market of the Year (Pop 750K – 2M)
- Honorable Mentions – New Orleans & Baton Rouge
- 2015 Mid-Market of the Year (Pop 250K – 750K)
- Honorable Mention – Shreveport
In June Area Development magazine awarded Louisiana the 2015 Silver Shovel Award (Pop 3M to 5M category) for posting one of the best economic development performances in the U.S. during the past year. The awards honor states with the most significant impact from their 10 leading investment and job creation projects during 2014. This is our State’s 6th year in a row earning a Silver Shovel Award.
In May Chief Executive magazine honored Louisiana with its highest ranking ever in its CEO survey of state business climates, ranking #7 on Best & Worst States for Business. This is up 40 positions since January 2008, representing the greatest improvement of any state in that time period. Additionally, Site Selection magazine picked Louisiana No. 2 in U.S. for economic development competitiveness in 2014 with 7 of the top 10 states located in the Southeast, which points to the region’s sustained competitiveness over the past decade.
All of this just a decade after most of the nation had written Louisiana off for dead following Hurricanes Katrina and Rita in the summer of 2005, quite remarkable to say the least. This is not only encouraging for our personal businesses but also inspiring for the business community in our State. I see the retail industry as a huge beneficiary of this success during this past decade with even brighter days ahead.
Jimmy Maurin and Roger Ogden, Founders of Stirling Properties, Give Back to LSU
Five Louisiana State Univeristy (LSU) business students – David Harms, Raju Marasani, Sawyer Chauvin, Saban Sellers, and James Guinn – received the 2015 ICSC Foundation Maurin Ogden LSU Scholarship Award. Funded by Jimmy Maurin and Roger Ogden, founders of Stirling Properties, this annual scholarship is awarded to a select handful of EJ Ourso College of Business students with an interest in Commercial Real Estate. The award provides an all-expense-paid attendance to the ICSC RECon Convention in Las Vegas.
David Harms, one of the award recipients, delivered the opening remarks as part of the ICSC Foundation Gala held on May 17th at the Wynn Hotel & Casino in Las Vegas.
More specifically, this scholarship is awarded to students enrolled in Finance 7720, Commercial Real Estate Investing, at LSU. This course is offered in both Spring and Fall semesters at LSU and taught by adjunct instructor Justin Landry of Stirling Properties. Each year Stirling Properties chaperones the five LSU Award Recipients to the convention, offering the students valuable exposure to industry leaders and potential employers at the convention.
“We’ve had tremendous success over the past two years with this scholarship award, in fact a handful of students have received jobs as a result of attending the convention,” said Justin Landry, Asset/Finance Manager for Stirling Properties. “None of this would be possible without the generosity of Stirling’s original founders, Jimmy Maurin and Roger Ogden who fund the scholarship yearly. There are no two people more committed to LSU, real estate and education.”
For more information about Finance 7720 – “Commercial Real Estate Investing” and its objectives contact Justin Landry at jclandry@stirlingprop.com or LSU Department of Finance at finance@tigers.lsu.edu.
President’s Message: Alibaba and the Sales Tax Thieves
Over the last year and a half, I have written several messages about the pressing need for passage of the Marketplace Fairness Act. In those messages, I have cited numerous reasons including:
- To level the playing field.
- The government shouldn’t be choosing winners and losers by providing unfair tax advantages to some.
- The taxes are owed so this is not a new tax – just a loophole in the law (which over 98% of people don’t choose to pay).
- Lost sales tax revenues are crippling our state and local governments who depend on this revenue and this will only get worse unless this trend is reversed – either services will be cut or taxes will be raised in other ways.
Now, you can add yet another reason to the list – Alibaba (a Chinese company larger than Amazon and eBay combined) – recently launched the largest IPO in Wall Street history. The current loophole in the internet sales tax law will allow foreign companies, like Alibaba, to unfairly compete with our U.S. retailers who employ people here, pay taxes here, and have brick and mortar presence here. That is unfair. Watch the latest commercial that is now being run by the Alliance for Main Street Fairness.
Recently, I was in Washington, D.C. with a small group of CEOs representing the International Council of Shopping Centers. We met with key members of Congress to urge them to pass Efairness legislation. This ICSC article offers more details about our meetings.
The good news is that they are listening, but we need to continue to have our voices heard. This link offers an easy method to take action by phone, email or tweet. I encourage you to contact your members of Congress today.
