Impact of online sales on the local economy

What is online shopping?

Online shopping can be defined as a derivative of retail e-commerce that can be purchased from retail e-commerce stores on the Internet. Very few items cannot be purchased online. From materials such as gadgets and clothing to consumables such as groceries and food, you can use everything while relaxing on the sofa. Online shopping allows you to purchase different types of goods and services at different online retailers and vendors. Services such as IT, plumbing and upholstery can also be procured online. If you have internet access and, in some cases, a credit or debit card, the world is your oyster. Over the last decade, online shopping has become a central part of the lives of the average Internet user.

Local businesses rely on the attention and business of their target audience to thrive. The rapid growth of online shopping presents both challenges and opportunities to accomplish this important task.

Consider these online shopping stats.

• Over 75% of consumers shop online at least once a month.

• 4-10% of retail sales occur online.

• During the 2018 holiday season, $ 126 billion was spent on online purchases in the country.

All of these purchases are not made in-store. And that means that all these purchases have a measurable impact on the local economy. Is this bad news for local businesses? The reality is a little more complicated.

Online purchases can deprive the local economy of taxes:

Perhaps the biggest negative impact of online sales on the economy is to reduce the amount of sales tax collected by the state and other local taxes collected by towns and counties.

Not all online retailers impose appropriate sales and other local taxes on items that customers purchase from online stores. As a result, state residents may not be able to pay sales tax on online purchases that they would have made if they had made the same purchase in a physical store.

This loss of revenue is measurable. According to the University of Tennessee, Indiana lost $ 195 million in sales tax revenue from online purchases in 2012. Now that the popularity of online sales has skyrocketed, this number is almost certainly growing.

To reduce these losses, Indiana passed a law that came into force in October 2018. The law requires retailers with at least $ 100,000 in sales in Indiana, or more than 200 Indiana residents annually to impose sales tax on online purchases.

However, this law does not affect SMEs. Also, because it does not apply to local taxes, it cannot completely close the tax gap created by online purchases.

Online sales make it difficult for retailers in physical stores to compete:

Many online retailers do not impose sales tax on their customers, so purchasing from them is cheaper. Small purchases charge 7% for only a few cents or dollars, but large purchases can add a difference.

In addition, sales tax savings can be important when customers pinch penny or make many purchases, such as during vacations.

As a result, physical stores that must impose appropriate taxes can struggle to compete with online retailers who do not add these taxes to the cost of goods. If customers choose to go online instead of in-store to save money, the growth potential of local businesses is limited.

Online purchases rob the local economy of money:

Online purchases can also remove money from the local economy. For example, if a customer buys a gift from Amazon rather than from a local vendor, the money goes to retailers across the country instead of the buyer's community.

This loss of income can limit the local economy. Employment is also reduced because less money is brought to local businesses. Less employment means less money flowing into the local economy. Less money flowing into the local economy means less work and less money available to residents. After that, they spend less money locally, leading to a vicious cycle that can hinder the growth of the community.

Not all online purchases are bad.

Like any other story, it has two sides. Buying online can move you away from the local economy, but you can also contribute to it in certain ways. The important thing is for local businesses to enter the online market.

The main drawback of online purchases occurs when consumers make these purchases from state-owned companies rather than from local businesses. On the other hand, buying online locally is a good thing.

For example, a local business may impose appropriate taxes on online purchases. Similarly, when consumers buy online from local businesses, the money flows into the local economy.

Online shopping doesn't go anywhere. E-commerce has radically changed the way consumers approach shopping. The convenience of practice means that e-commerce is likely to continue to grow in popularity.

Instead of fighting this new reality, local businesses can accept it. Through digital marketing, they can build websites and advertising campaigns that bring them in front of their target audience. It's not impossible to compete with big companies.


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