The strength of retail in a region is a good indicator of the health of its economy. The 2015 Franklin County Retail Report presented by Franklin County and the Columbus Chamber sheds light on the role retail plays in the economy of the fastest growing urban county in the state.
“The retail sector contributes a great deal to our economy each year, and sales tax receipts make up more than half of the County General Fund budget,” the report says.
Sales tax revenues grew 69 percent from 2013 to 2014 from $152.7 million to $257.8 million, corresponding with an increase in the sales tax rate from 0.75 to 1.25 percent. Of that total, retail trade made up 56 percent of the revenue, a decline compared to recent years.
E-commerce purchases are having a major effect on retail sales tax revenue, lagging because of non-taxed online purchases.
Ohio is one of 24 states making strides to close the gap in that revenue stream. In response to the Marketplace Fairness Act which was introduced to Congress in 2013 and requires online and catalog retailers to collect sales tax, Ohio joined several other states as a member of the Streamlined Sales Tax Project. The project aims to develop tools and technology to standardize sales tax collection, including e-commerce purchases.
To demonstrate just how many tax dollars are missed out on because of current e-commerce regulations, the report compares what was actually collected in 2014 to the potential that could be collected.
“Ohio’s involvement in SSTP has helped improve collection of taxes on online sales,” the report says. “In fiscal year 2014, Ohio collected $45 million from out-of-state retailers, 68 percent higher than five years earlier. However, the state’s Department of Taxation estimates that is only a slice of $308 million in potential revenue.”
Aside from tax revenue, a growing e-commerce margin also means less individuals physically making purchases at stores.
“The strongest retailers, however, are able to create an experience and and provide customer service in their shops that insulates them from losing customers to online sellers,” the report says.
Data in the report from a PricewaterhouseCoopers survey also reveals the top three reasons consumers still seek brick-and-mortar shopping experiences versus online, as well as the opposite reasoning. Customers buy products in store because they want to be able to see, touch and try merchandise, have the product immediately, and be more certain about the fit/suitability of a product. Customers turn to online retailers to find lower prices or better deals than in stores, to shop 24/7 and to eliminate the need to physically travel to a store.
Many shoppers are also looking at products online then purchasing in store (web-rooming), or doing the opposite and checking out products in store before deciding to buy online (showrooming). Seventy percent of respondents practice web-rooming, and 68 percent, showrooming.
For brick-and-mortar businesses to continue to thrive as vacancy rates stay steady and rents remain flat, retailers will have to get creative.
“Supporting innovation and even risk-taking in retail will continue to be important to supporting the Central Ohio economy as we also continue to work to make our community attractive to established businesses looking to relocate,” the report says.
While e-commerce is presenting some interesting challenges for retailers, a positive impact can be seen in other industries. While retail employment in the region has plateaued, “Employment in transportation and warehousing, a major beneficiary of the e-commerce boom, increased 31 percent from 2001 to 2015 and has recovered faster than retail since 2010,” the report says.
Click here for a full version of the 2015 Franklin County Retail Report.