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Crap on the Part of the Economy That's Working? Come on, Man

5/8/12

By Ken Magill

The Internet is one of the few bright spots in the economy and one of my heroes has just said we should kneecap it.

I respectfully disagree.

One of the greatest writers in direct marketing is Denny Hatch. If you haven’t read him yet, you should.

He’s smart, provocative and knows marketing like few others.

But today, Hatch essentially yelled at the Internet.

In a piece headlined “It’s High Time Web Sales Were Taxed,” Hatch begins by decrying the practice of “showrooming,” where shoppers visit bricks-and-mortar stores to check out products but then buy them at home online to save money.

He then recounts an anecdote of a small Pennsylvania bookstore supposedly driven out of business by deep-discount competition from Borders, Barnes & Noble, and ultimately Amazon.com—essentially the anti-Walmart argument repackaged for the 21st century.

The piece then devolves into an anti-Amazon.com screed, calling its CEO Jeff Bezos “rapacious” and focusing solely on price competition.

In the final sentence of the article, Hatch wrote: “Last Tuesday, Jeff Bezos gleefully announced that Amazon’s scorched-earth policy of destroying such industries as book publishing, toys and electronics will be expanded to include women’s high fashion.”

Gleefully? Should Bezos have made the announcement sadly?

Bricks-and-mortar retailers certainly can compete with Amazon.com, just not solely on price.

Case in point: GameStop. The Magill household has every gaming system known to man. We all play video games. My wife’s current favorite is Bejeweled, my son is nuts about Skylanders and I am deep into the medieval fantasy world of Skyrim.

The center of GameStop’s business model is its retail stores. It has great loyalty and used-game exchange programs. But best of all are its employees.

They are all friendly, helpful, super-knowledgeable gamer geeks who make spot-on recommendations based on customers’ stated preferences.

What’s more, they all share another helpful trait: They’ll tell you when a game stinks. One GameStop employee told me they steer customers away from bad games because they don’t want to be stuck with the returns of a bunch of used titles they can’t unload.

When dealing in commodities, bricks-and-mortar retailers must compete on service. GameStop does it.

Hatch also made the usual zero-sum-game taxation arguments.

“While Amazon has some fulfillment centers around the US where it employs people (and temps) and pays real estate fees and sales taxes on sales shipped to those states, in the thousands of communities to which he ships books and a vast range of merchandise, Bezos spends nothing on a local presence—no stores and no jobs for knowledgeable local people to run them,” Hatch wrote. “Nor does he pay real estate taxes or local sales taxes in these thousands of locales to which he ships books and merchandise on the cheap.”

Nowhere does Hatch address the hundreds of thousands of Amazon.com affiliate sellers—in 2011 there were reportedly 25,000 in California alone—who most certainly pay local taxes and buy local goods. Nor does he address the thousands of local used-book sellers who have an international mail-order presence through Amazon.com, who also pay local taxes and buy local goods.

Oh, and um, Denny. Your latest novel “Coldcocked, a novel of seven murders, the media and the law” is available on Amazon.com’s e-book service, the Kindle.

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Terms: Feel free to be as big a jerk as you want, but don't attack anyone other than me personally. And don't criticize people or companies other than me anonymously. Got something crappy to say? Say it under your real name. Anonymous potshots and personal attacks aimed at me, however, are fine.

Posted by: Richard Barrios
Date: 2012-05-10 11:40:14
Subject: Denny Hatch, expert?

Ken,
Being a online business man, myself, I have to say that I do not have the same respect for Denny as you do. I will never understand why a online marketer would tell his clients that they should pay more taxes. If he was my online marketing consultant I would ask him to leave. I would never say that to my client.

The truth of the article is that he hates Amazon. Which is fine, after all there are many companies I believe that hurt the market place because of their overwhelming buying power. However, because of his hatred for one company he would like to see a blanket policy for all online retailers. Which hurts millions of people and drives prices up. Including brick and motor who are also online retailers and enjoy the same benefits as Amazon when selling to people outside of their state.

The bottom line, creating a internet tax opens the door to big government to add additional hardship to our lives and we give up more of our freedom. Whats next, dictating how we use our internet connection, a tax on bandwidth or what we put on the internet? Oh wait, they government has been trying to do that for years now. It's called SOPA.

Also,I was really upset that I could not leave a comment on the "Target Marketing" website. I got a error page every time I hit the submit button. How do I respect a online marketing company that can't maintain their own website.

Lastly, I read his bio on the "Target Marketing" website and I notice that he had decades of experience in direct mail and print ads. But zero experience in online marketing. WTF? I have 12 years of experience with a stake in the game. I've handled multiple websites with 50K plus uniques per day and affiliate programs managing thousands of affiliates and payouts. When I open my mouth about online marketing, search engines and traffic I know what I am talking about. I have the background to back it up. What makes him the expert? It's like a unmarried person giving advise on how to keep a marriage strong. How would that person know?

Nice to see that I can post here without a apache server error.

Thank you
Richard Barrios
Posted by: Denny Hatch
Date: 2012-05-09 13:00:06
Subject: In response to Magill's article

Many thanks to all of you who commented, and to Ken Magill for the mention in: “Crap on the Part of the Economy That's Working? Come on, Man”

http://www.magillreport.com/Crap-on-the-Part-of-the-Economy-Thats-Working-Come -on-Man/

From yesterday’s New York Times:

http://www.nytimes.com/2012/05/08/business/amazon-plans-its-next-conquest-your -closet.html?_r=1

"The online retailer [Amazon.com] is happily losing hundreds ofmillions of dollars a year on free shipping — and, on apparel, even freereturns — to keep its shoppers coming back."

Wall Street has not figured out this massive scheme, but here’s theskinny: Bezos, with 5+ billion in cash, is positioning himself to be the lastretailer standing—to do away with all non-food and non-drug retailersnationwide—so that two companies can take over American retailing: Amazon.comand UPS (and maybe the USPS which, Lord knows, needs all the help it can get).

In international trade, this is called “dumping” (e.g., Chinadumping cheap steel into the U.S. market in order to achieve monopoly).

Dumping, of course, is illegal and unfair. The federal governmentlevels import duties on dumped products to keep the playing field level fordomestic producers.

An aside: the U.S. Government prosecutes, fines and jails Americanentrepreneurs and corporations for paying bribes to foreign officials in orderto get business overseas. Yet lobbyists in this country are free to bribegovernment officials (senators and representatives) with massive payments totheir private PACs and campaign funds) to get their way with favorablelegislation. Go figure.

Check out these obscene payments to Congress onhttp://www.opensecrets.org.

BTW, I’m not alone in decrying the Amazon behemoth. From Forbes.com yesterday.

http://www.forbes.com/sites/lauraheller/2012/05/08/yes-amazon-can-be-stopped/? feed=rss_home

The response to my piece has been high volume—and angry. The oldrule: Everybody listens to W-I-I FM (What’s in it for me) is alive and well.

David Ogilvy’s line is operative here. “You can’t bore people intobuying anything.”

You gotta love the debate!

Thanks again for the comments.
Posted by: Thorin McGee
Date: 2012-05-09 10:33:40
Subject: Misrepresenting Game Stop

Ken, I have to say, I think you woefully oversimplify Game Stop's business model. Buying and selling used games with instant turn-around, and having established market domination of that years ago, is probably more important to its retail success than customer service. It's a model that has not been satisfactorily duplicated on the Internet.

Gamestop faces online pressure, but the pressure is more from games moving to non-tradable online distribution than actual competition. That model can't be applied to most IRL retailers.

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