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Waiting for Great Deals, Celebrating at Home: Holiday Outlook 2012

Guest Blog by Thom Blischok

The 2012 holiday season is going to be one of change. The old pattern of rushing out for the impulse buy is giving way to a growing trend of patient, cautious shopping, with more options for getting great deals enabled by technology, according to a recent Booz & Company 1,600-person survey.

The one constant in 2012 is the “lens of affordability.” Every shopper Booz & Co. talked to or surveyed indicated that his or her buying decisions will be determined by affordability. Shoppers will be buying gifts they need more than gifts they want. Across income levels, shoppers say that their 2012 holiday spending will be almost the same as last year’s: between $675 and $725 per family. The historical precedent of a huge gift haul is transitioning to a smaller – yet more meaningful – gift-giving experience. At the same time, holiday celebrations are “in” this year, as the uncertainty of today’s economy continues in the minds and wallets of the 2012 holiday shopper.

Here are three key trends to watch from Booz & Co.’s holiday 2012 research:

  1. The search for deals will drive purchase behaviors. Seventy-three percent of all shoppers expect to find great deals this holiday season – an 18 percent increase over 2011. Almost 25 million shoppers will wait until Christmas Eve to fill their shopping carts, a number also up from last year. Retailers already are beginning the “deal dance” with consumers as they position themselves with great offers. Shoppers will let their keyboards do the walking to find these deals, using smartphones to snap pictures in stores and then going online to compare prices and find the best one. This “showrooming” trend will lead to future holiday seasons that are driven by global price and value transparency.
  2. Shoppers will be planning more holiday celebrations. Sixty-one percent of shoppers are planning a holiday celebration as a way to give thanks for living through a very tough economic period (up 12 percent from last year). Almost 53 percent of shoppers report that they are planning more than one celebration this year, a 17 percent increase over 2011. All families who responded, regardless of income, want to celebrate as affordably as possible – and making a fine dinner is at the top of their holiday list. There will also be significant entertaining; consumers are seeking intriguing hors d’oeuvres, snacks and treats to feature at holiday festivities. To tap into this, retailers must become creative in offering the tastes, smells and delights of the holiday season. They can help home cooks create innovative, large family meals with interesting new side dishes and desserts as well as labor-saving ideas, such as ready-washed and precut meal assembly ingredients.
  3. Gift-giving will be reshaped by affordability, “light” indulgences, and family categories. Seventy-six percent of shoppers indicate that they will “pause before purchase” to ensure they make the right gift decision. Impulse purchases appear to be on the decline as shoppers stretch every holiday dollar. However, 52 percent of shoppers plan to splurge a little with a luxury gift that their budget can handle. For some it will be that special handbag, for others a home appliance, and for others a true holiday meal celebration. Re-gifting will also be on the rise this season: Presenting last year’s gifts with a little value-add (like a small accessory) will become a gift-giving strategy embraced by 32 percent of American shoppers. Expect categories such as home entertainment, basic apparel, exotic kitchen appliances (like next-generation coffeemakers and food processors), smartphones and tablets, interactive toys and downloadable gifts like e-books to top wish lists.

It would be fair to say that the 2012 holiday season will be one of careful and controlled spending, lots of celebrations for surviving another economically tough year and purchases that are determined largely by the search for the deal.

Thom Blischok is the chief retail strategist and a senior executive advisor at Booz & Co. For more information, visit www.booz.com.

Retail Merchandiser magazine is pleased to present the points of view of many different industry stakeholders. If you would like to contribute your own guest blog to our site, please contact the editor at russ.gager@phoenixmediacorp.com.

Five Lessons Learned for Increasing Holiday Sales This Year

Guest Blog by Shelley E. Kohan

Many of us have been retailers for a long time. Once upon a time, we wrote sales checks (yes, with a pen) and calculated labor hours using manual time sheets. But what has always set us apart has been our unique, innate ability for instinct and intuition. We have remained in the business successfully by making decisions based on our experiences in the field.

We are retail warriors. Occasionally, we will back up our decisions with data. Having jumped on the technology bandwagon for the past decade, I am surprised to find that what we know and what we do about it may sometimes be very different. A case in point is the following post-2011 holiday analysis, which reveals some staggering insights from retail warriors across the United States.

As we enter the 2012 holiday season, here are some insights to help deploy your resources more effectively for increased sales to drive this year’s performance. After analyzing more than 40 U.S. retail store chains’ performance and examining the in-store behaviors of more than 20 million shoppers between Thanksgiving weekend and Dec. 31, 2011, here’s what we found:

1.     Don’t Underestimate First Weekends in November.

Retailers are missing early season traffic by not having enough staff the first two weekends in November. Many retailers extend their existing staff first before hiring new associates, or new hires start but do not hit the selling floor until the third week of November. Hired, trained sales associates need to be on the floor and ready to sell by the first Saturday of November.

2.     The Post-Christmas Sale Is No Joke.

The time after the Christmas holiday remains a great opportunity for most retailers. Shoppers continues to hit the stores only to find the holiday help is gone! Obviously, conversion drops due to returns, making it difficult to maximize sales and service. However, the store traffic still represent a “selling opportunity” − especially with the escalating trend of gift cards as holiday gifts.

Am I crazy to suggest one and two above? Do I get that payrolls are tight and stores simply cannot add expense? (Of course I do, I’m a retail warrior.) In-store analytics extract the details from the data and provide you with the knowledge to maximize the nuggets of information you discover. Simply adding staff will not give you a full return on investment for the suggestions above. Instead, do the following:

3.     Shift Staffing Hours.

Move hours out of the middle of the week when most retailers are over-staffed. Also, hire in shifts or increments to accommodate the high weekend traffic in November. By looking at the by-hour and by-day traffic-to-conversion comparison, there will be opportunities to shift staffing to when you need it most.

4.     Treat Dec. 26 Like Black Friday. 

Most retailers experience similar traffic on Dec. 26 as they do on Black Friday. Make it all-hands-on-deck. (We think we do, but it’s worth double-checking staff hours for this day.)

5.     The New Year’s Eve Holiday is Marketing’s Best-Kept Secret.

Shoppers are still out in the stores and want to shop. Give them incentives to buy! Create events in the store to drive traffic and conversion.

The overwhelming majority of holiday buying still occurs in brick-and-mortar stores – 95.5 percent of it, according to the U.S. Department of Commerce. To all the retail warriors out there, let’s decide to make it an even bigger 2012 – armed with our killer instincts and the supporting data.

Shelley E. Kohan is vice president of retail consulting at RetailNext and has more than 20 years of experience in the retail industry, focused on luxury brands within the department and specialty store sector. She also is an instructor at the Fashion Institute of Technology of the State University of New York in the fashion merchandising management program. She can be reached at shelley@bviretailnext.com.

Retail Merchandiser magazine is pleased to present the points of view of many different industry stakeholders. If you would like to contribute your own guest blog to our site, please contact the editor at russ.gager@phoenixmediacorp.com.

 

 

 

Interest Growing in Mobile Point-of-Sale

Guest Blog By Dana Warszona

The evolution of retail has hinged around the ability to buy and sell goods in the most efficient way. Today, it’s all about consumers and ensuring their shopping experience is engaging, seamless and convenient. Shoppers have higher expectations and retailers must find ways to continue improving customer service in the store – especially during peak periods. In response to this demand, retailers are deploying mobile point-of-sale (mPOS) technology as a strategy for improving customer satisfaction and streamlining in-store operations.

Motorola Solutions conducted a survey among the retail, hospitality and field service industries that revealed the interests and experiences with the use of mPOS. The results illustrated that retailers are beginning to embrace mPOS as a means for delivering increased customer service and payment convenience, while gaining opportunities to close the sale. For example, 71 percent of retailers surveyed indicate an interest in mPOS and are using or planning to use it to improve customer service, inventory management, pricing and merchandise returns applications.

Additionally, mPOS provides retailers with the opportunity to potentially eliminate the high cost of traditional cash registers and accept customer payments from anywhere in the store. This not only reduces customers’ time spent waiting in line, but also decreases time they might spend pondering their purchasing decision. The result is an improvement in the bottom line, because retailers are in a better position to close the sale. Below are a few other key findings from the survey:

  • Sixty-six percent of retail respondents are interested in mPOS, while 42 percent of retail respondents are currently piloting or starting trials within the next 36 months, and the majority is focused on using mPOS for sales associates on the store floor or line-busting.
  • In December 2011, Motorola’s holiday shopper survey found that one-third of store visits ended with an average of $125 unspent due to missed opportunities to purchase. The survey also found that inefficient payment processes were one of the leading contributors to those lost sales. More than 43 percent of shoppers agreed that their shopping experience improved when store associates used mPOS devices.
  • Sixteen percent of surveyed retailers currently have an mPOS solution deployed, while less than 9 percent have completely mobile checkout systems.
  • On average, retail respondents anticipated replacing more than 36 percent of their fixed POS as a result of migrating to an mPOS

Shopping today is truly becoming an interactive experience. The retailers that embrace connectivity and engagement will be those that win the hearts and wallets of shoppers.

Dana Warszona is the senior marketing manager of retail solutions at Motorola Solutions.

Retail Merchandiser magazine is pleased to present the points of view of many different industry stakeholders. If you would like to contribute your own guest blog to our site, please contact the editor at russ.gager@phoenixmediacorp.com.

Touring Chicago’s High-end Retail Scene

By Russ Gager

The differences in luxury retailing were highlighted during a tour of three major high-end shopping malls on Chicago’s “Magnificent Mile” – Michigan Avenue – at the conclusion on Oct 2 of the 2012 Research Connections conference held by the International Council of Shopping Centers (ICSC).

Tour attendees were given guided tours of the malls by representatives of their management companies. First up was The Shops at Northbridge, which uses its innovatively designed mall to draw shoppers from the pricey rents of Michigan Avenue to the Nordstrom that anchors the rear of the mall, which is located one block behind Michigan Avenue on a street with more reasonable rent.

Since 2008, The Macerich Co. has owned and managed all the retail within the nine-block Northbridge complex that includes several hotels, office buildings and another retail complex. Approximately 30,000 hotel rooms are near The Shops at Northbridge, so the mall attracts both visitors and residents. Macerich has created promotions to increase residents’ use of the mall and is using a temporary promotion by Cadillac to spur sales.

The next stop was further down Michigan Avenue across Michigan Avenue from the historic Water Tower, which survived the Great Chicago Fire in 1871. Named Water Tower Place, the mall is managed by General Growth Properties (GGP). Built in 1976, GGP replaced a former Lord and Taylor with a series of stores in 2008.

The prime first-floor space opposite Macy’s was leased to American Girl Place, and as the vertical shopping mall ascends, retailers like Adidas have taken over Lord and Taylor’s former space to draw shoppers to the back of higher floors. Eleven new retailers were introduced in 2008 to the mall, and GGP says it has introduced new stores to 60 percent of the mall. Level 2 is for families, with a Lego store next to American Girl Place’s second floor. Level 6 is for teens and has acquired popularity on social media as a meeting place.

The final stop was at the 900 North Michigan Shops, which is anchored by Bloomingdale’s in the rear of the mall. The mall features high-end, exclusive shops, some from London and other unique ones from local entrepreneurs. Managed by JMB Financial Advisors LLC, the mixed use structure also houses a Four Seasons Hotel, 300,000 square feet of office space and 154 luxury condominiums in two towers.

Approximately 30 percent of the mall’s sales are from residents, JMB says. The mall is noticeably quieter with a lower level of retail traffic and tourists than Water Tower Place, but JMB says the shoppers have a higher per capita level of consumption.

Smaller groups of ICSC attendees ventured out of the Fairmont Hotel where the meeting was held to explore nearby State Street’s new Walgreens concept store, the new City Target in the historic Carson Pirie Scott and Co. building and the historic Macy’s – formerly Marshall Field and Co. – along with the variety of retail options within walking distance.

Russ Gager is the editor-in-chief of Retail Merchandiser magazine. He can be reached at russ.gager@phoenixmediacorp.com.

 

Work Harder and Innovate in Slow Times

By Russ Gager

Although shopping centers and malls may be built out in the United States, there still are opportunities to renovate them and take them more upscale through the addition of new tenants and improved amenities, David Contis, president of Simon Property Group told the 235 attendees at the International Council of Shopping Centers (ICSC) at the 2012 Research Connections conference at the Fairmont Hotel in Chicago Oct 1.

With 164 malls worldwide and 34 properties, Simon Property Group is adding upscale tenants and sliding doors, better seating and bathrooms, and children’s playgrounds to more than half of its retail portfolio to improve the properties’ market shares, Contis said in a wide-ranging discussion moderated by John Riordan, ICSC past president and lifetime trustee.

Contis also is bullish on incorporating mobile retailing into the brick-and-mortar shopping experience. He pointed out that Amazon.com wants a retail store and Apple relies on them. “At the end of the day, the Internet is moving more in our favor,” Contis asserted. “People still want to touch the merchandise.”

He used as an example a banner that pops up on a retailer’s website when a customer is ordering online that asks whether the customer would like to pick up the item at a nearby mall’s store instead of shipping it. Contis also pointed out how Apple uses its in-store computer classes to soft-sell additional hardware and software, something it cannot do on the Internet. Geofencing can be used to restrict customers’ in-store Wi-Fi access, he said, but he stressed positive synergies with online and mobile retailing.

Contis acknowledged the current trends toward building and converting malls to lifestyle centers and outlet malls or hybrids of conventional and outlet stores, but predicted that growth of those eventually would slow. He also praised the growth of retailing in Brazil and China, and the collection of sales taxes on Internet purchases to level the playing field with brick-and-mortar stores. Overall, his message was to take advantage of the changes in retailing by innovating rather than trying to block, ignore or reverse them.

Russ Gager is the editor-in-chief of Retail Merchandiser magazine. He can be reached at russ.gager@phoenixmediacorp.com.

Build Relationships to Win Deals With Large-scale Retailers and Grocers

Guest Blog By Marty Gallant

In the consumer goods industry, securing premium retail placement is one of the primary concerns for distributors as well as manufacturers. Often, it is the only obstacle keeping companies from reaching the next level. With an economy at rest, the opportunities for optimum retail placement have shrunk, and competition has increased.

Vitamins are one of the more difficult consumer goods areas to navigate in the category of chain drug, mass market and grocery stores. Scores of large chain stores are swallowing up smaller chains and steadily rebranding them as spinoffs of their own brand. In the past few years alone, Walgreens has expanded its prominence as the largest chain drug retailer in the United States following its acquisitions of Happy Harry’s, Duane Reade and USA Drug.

Situations like this have presented challenges for many smaller consumer goods providers. Not only do they need to work toward securing shelf or retail placement, they also must strive to earn the confidence of these retailers to maximize the time their products are in stock. The question then becomes how you convince a retailer that your items deserve prominent placement and promotion in an overcrowded vitamin section.

Know your prospective retailer’s set. Before the appointment with the buyer, visit a number of stores in the chain that vary in size and location. Stores in the same chain can have different size sets, with different products making individual planograms. The locations of the sets can vary from store to store depending on the individual layouts.

In larger sets, bad placement can cause an item to get lost among a sea of other offerings. Low shelf placement in a small set can cause the item to get lost completely because they often are not as visible to shoppers.

Know your competition. Become well-versed in the category as a whole in addition to items similar to your own. Know the retail price points of your competition. Some questions to ask yourself include:

  • Would your item be one of the higher priced items in the set?
  • Would it be one of the lowest?
  • Is there a private label brand similar to your products that the retailer already carries?

Small consumer goods providers involved with the vitamin category will find that some retailers choose to place more of an emphasis on the vitamin section in their chains, while others will sacrifice the shelf space for other categories in the health and beauty set.

Provide the buyer options. If you are not a vendor of record for the prospective retailer, then do not enter the meeting pitching only one item. Most retailers would prefer not to deal with a one stock-keeping unit (SKU) vendor. Instead, they are more likely to pursue pitches that include a line of items providing the opportunity to select what fits their sets and stores. The more options you provide, the better success you are likely to have.

For the reasons mentioned above, it is important for small consumer goods providers to not only pitch a retailer on the purchase of an item, but to provide legitimate reasons to award the item prominent shelf placement when the topic enters the conversation. As brand name chains absorb more and more of these smaller companies, the competition grows. Earning premiere placement and long-term contracts in retail accounts can make or break those in the vitamin category and beyond.

Marty Gallant is the president and CEO of Natural Product Solutions LLC, a natural products development and manufacturing company. For more information, please visit www.virmaxinfo.com and follow us on Twitter at @VirMaxDS.

Retail Merchandiser magazine is pleased to present the points of view of many different industry stakeholders. If you would like to contribute your own guest blog to our site, please contact the editor at russ.gager@phoenixmediacorp.com.

 

What Are ‘Conflict Minerals’ – and Why Should I Care?

Guest Blog by T. Markus Funk

In the morning hours of Aug. 22, law firms, boardrooms and compliance professionals around the globe were humming with anticipation (or perhaps more accurately, laboring under a chilly frisson of dread). The cause for this collective anxiety was the SEC’s much-anticipated – and much-delayed – announcement of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s final disclosure and reporting rules (the “rules”) concerning “conflict minerals” (generally tin, gold, tantalum or tungsten or any other minerals or their derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of Congo or adjoining countries). Would one man’s well-intentioned humanitarian effort once again become another’s costly export of moral imperatives for difficult-to-achieve public policy objectives?

What Happened?

The SEC approved the highly controversial Rules by a narrow 3-2 vote. The net result is that a considerable swath of corporate America, including many retailers, must now conduct “a reasonable inquiry” into the origins of those minerals and disclose any use of them on a new Exchange Act filing (“Form SD”).

Moving from the general to the specific, the rules apply to public companies using any (yes, even trace amounts of) conflict minerals, where the minerals are “necessary to the functionality or production” of an item the company (1) makes itself or (2) contracts a third party to make on its behalf.

Critically, the latter “contract to manufacture” provision applies to retailers and other corporations who have others manufacture products for the business, provided the corporation has “any influence” (a term that is left intentionally undefined and thus amendable to broad interpretation) over the manufacturing process. So if you, for example, are a retailer who directs a manufacturer to custom-make a certain product for you that contains some amounts of gold or tin, then there is a very good chance that you will fall under the rules’ considerable scope.

National Retail Federation Vice President Jonathan Gold noted in his post-announcement statement, “It’s very important that a distinction be made between a retailer who is acting as a manufacturer and has control over what is in a product and the vast majority who do not.” According to Gold, “While retailers abhor the violence in the Congo, compliance with these regulations could still be extremely difficult, and there is considerable debate on whether filing reports with the SEC will make any difference.”

The SEC estimates that the rules will affect as many as 6,000 listed companies both foreign and domestic. Private businesses, moreover, will be pulled into the rule’s orbit to the extent they supply SEC-registered companies. Companies must compile their data every calendar year, starting Jan. 1, 2013, and file their first Form SD by May 31, 2014 

What Now?

Retailers subject to the rules’ oversight and disclosure requirements who have not yet established a compliance and due diligence management frameworks should consider doing so. Although some of the rules’ mechanics lack definition, here are some basic steps retailers should consider taking:

Determine whether the rules may apply to you:

  • Are you a Section 13(a) or 15(d) issuer?
  • Do you, as part of your business, either (1) manufacture products or (2) contract with others to manufacture products for you while having “any influence” over these manufacturing activities?
  • If the answer to the immediately foregoing is yes, are conflict minerals (generally tin, gold, tantalum or tungsten or any other minerals or their derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of Congo) “necessary” to the product’s “functionality” or production?

Create conflict minerals risk profiles based on:

  • Preliminary lists of products potentially containing conflict minerals.
  • Key supplier documents and agreements.
  • Targeted interviews of personnel with supply chain oversight.
  • Prioritized lists of potential problem areas and ways to address them.
  • Assemble an internal conflict minerals compliance team with representatives from manufacturing, engineering, procurement, finance and legal.
  • Build a work plan, timeline and compliance budget

Design and implement a practical supply chain compliance program, including a:

  • Conflict minerals code of conduct setting forth expectations for employees and transaction partners (including suppliers).
  • Compliance questionnaire for suppliers.
  • Supplier compliance database.
  • Risk management plan.
  • Customized “country of origin” inquiry program.

Develop:

  • A database of supplier personnel who should receive conflict minerals compliance materials.
  • Develop questionnaires and certifications for suppliers and determine any additional supplier documentation, due diligence and compliance requirements.
  • A risk-management plan covering procedures for suspending or terminating suppliers that violate procurement policies, and consider alternative sources for conflict minerals.
  • An integrated method of addressing the conflict minerals rules, FCPA, California Transparency in Supply Chains Act, and other laws and regulations bearing on your supply chain due diligence and oversight obligations.

Train relevant employees and key suppliers regarding:

  • Conflicts minerals rules and resources.
  • Best practices for supply chain investigation and oversight.
  • Cross-training for key suppliers with greatest risk exposure.
  • Distribute an initial written communication to suppliers educating them on the Rules and your company’s compliance obligations.

For the text of the 356-page “Final Rules,” click here.

T. Markus Funk is a former federal prosecutor who previously worked for the State Department and a Perkins Coie partner who helped launch the firm’s Corporate Social Responsibility and Supply Chain Compliance Practice (the first such dedicated practice among the 100 largest law firms in the United States). He can be reached at MFunk@perkinscoie.com.

Retail Merchandiser magazine is pleased to present the points of view of many different industry stakeholders. If you would like to contribute your own guest blog to our site, please contact the editor at russ.gager@phoenixmediacorp.com.

New Movers Are the Key to Attracting (and Keeping) Loyal Customers

Guest Blog By Michael Plummer

In today’s world, local businesses have more marketing tools at their fingertips than ever before. The explosion of online marketing concepts has made a big impact on the way consumers think about and react to campaigns. In fact, the emergence of social media gives consumers the power to influence and shape the brands they know. This has fundamentally changed the game because marketing is now as much, if not more, about controlling the message than shaping it.

However, there are still “push” marketing tools that can pay big dividends for local businesses, the most powerful of which is new mover direct marketing. Think about it – countless people move in and out of your hometown each year. Naturally, this means small businesses lose a percentage of their loyal customer base each year no matter how well they run their businesses – a potentially crippling problem for a small retail business.

The best way to replace those loyal customers is to reach and influence new movers with a targeted direct marketing program. Companies like Our Town America (www.ourtownamerica.com) specialize in those types of programs and are helping retail businesses around the country market to impressionable new movers who have yet to establish brand loyalties.

OK, yes, I hear you. “Why not daily deal sites?” “Why not direct mail companies that reach a larger group more often?” Here’s why:

  • Daily Deal sites are certainly effective at getting people to come to the store, but they rarely spark long-term relationships. Many of the customers these deals attract are serial couponers who always looking for the bigger, better deal. They’re not buying your products or services – they’re buying the deal.
  • Creating social media profiles and engaging with customers online is a great way to maintain and build customer relationships, but it takes a long time to make a sustainable impact through those tools. Additionally, executing social media campaigns successfully is a full-time job and a daily grind. It’s not easy and requires a professional to do it well, which can be expensive.
  • Broader direct marketing campaigns are less effective than new-mover-specific campaigns as well, because most people who receive the package aren’t new to town. They’ve established their brand preferences and are comfortable with the local brands they already use.

Conversely, new-mover programs – like the welcoming packages delivered by Our Town America – are affordable, targeted and personalized. They allow local businesses to welcome new residents to town right when they’re trying to figure out who to turn to in their new community when they need pizza, groceries, etc.

Timing is everything, even in today’s world. The local retailers who do the best job of reaching new movers at the right time will be the ones who best compensate for the customers they lose each year. Why, you ask? Because, even in today’s world dominated by cell phones and the Internet, people still love to feel welcomed, loved and appreciated. No marketing tool is better suited to evoke those emotions than a warm, hand-delivered package.

Michael Plummer is CEO of Our Town America. For more information, visit www.ourtownamerica.com.

Retail Merchandiser magazine is pleased to present the points of view of many different industry stakeholders. If you would like to contribute your own guest blog to our site, please contact the editor at russ.gager@phoenixmediacorp.com.

 

ZIP Code Collection: Retailers Beware

Guest Blog by Thomas Cohn

Last year, the California Supreme Court held that collecting a customer’s ZIP code during a credit card transaction violates the state’s Song-Beverly Credit Card Act (“Song-Beverly”). Thanks to this case (Pineda v. Williams-Sonoma Stores Inc.), California retailers have effectively been prohibited from requesting and recording customers’ ZIP codes during credit card transactions. Meanwhile, more than 100 consumer class-action lawsuits have been filed against California retailers.

In Pineda, the plaintiff alleged that Williams-Sonoma requested her ZIP code as part of a store credit card purchase and recorded it for marketing purposes. According to the act, a business cannot ask for personal identification information (PII) as a condition for a credit card transaction. The appellate court ruled for Williams-Sonoma, determining that ZIP codes are group identifiers rather than PII.

The California Supreme Court reversed, contending that a consumer’s ZIP code is protected under the act because it is definitively concerning the cardholder. Furthermore, the act was passed to prevent misuse of consumer information and later amended to “prevent retailers from ‘requesting’ personal identification information and then matching it with the consumer’s credit card number.”

Some of the recent class actions have considered questions left unanswered by Pineda, such as whether the act is violated by requesting a ZIP code if a business credit card is used (no), or when a personal credit card is used for a business transaction (yes). Most recently, a California federal court in May granted plaintiffs’ motion for class certification in an action against IKEA. This class action suit (Yeoman and Medellin v. Ikea U.S. West Inc.) alleges that IKEA violated Song-Beverly by requesting that cardholders provide their ZIP codes during credit card transactions, and then recording that information in an electronic database. The court found that the class definition was not overbroad and that IKEA’s practice of requesting ZIP codes showed common questions of law best resolved through a class action.

Song-Beverly is different from laws in other states because it forbids requesting, not just requiring, PII. One such law in New Jersey was tested last year in two cases. In Imbert v. Harmon Stores Inc., a Superior Court judge denied Harmon Stores’ motion to dismiss a ZIP code-collection class action. In addition to citing a statute that prohibits retailers from requiring PII, Imbert asserted that Harmon had violated a second statute that prohibits sellers from violating any “clearly established right” of a consumer.

At the same time, a federal judge dismissed a similar class action, Feder v. Williams-Sonoma Stores Inc., brought under the same two New Jersey laws. The court held that the plaintiff did not identify any provision of a “written consumer contract” violating state or federal law that would establish a claim under the second statute above. A ZIP code, the court argued, is not a contract provision violating a person’s rights.

In construing a similar state statute, a Massachusetts federal court recently came to much the same conclusion as California did in Pineda, but then dismissed the suit for lack of alleged injury. The court viewed the Massachusetts statute, which prohibits anyone from recording or requiring a credit card holder to write PII on the transaction form, as being primarily concerned with fraud-prevention and security, not privacy. But it still found that the retailer’s entry of the customer’s ZIP code (with name and credit card number) into an electronic terminal technically violated the Massachusetts statute, reasoning that a ZIP code was PII because it could be combined with other data to identify a particular person. The court dismissed the case (Tyler v. Michaels Stores Inc.) because the plaintiff failed to allege a cognizable injury like identity theft and, at most, complained of a deluge of unwanted mail.

Retailers trying to make sense of the ZIP code issue should note each case’s practical aspects. In California, merely requesting a ZIP code will violate the law, while in New Jersey and some other states, the law is only violated when the code is required to complete the transaction. In the Massachusetts case, the violation existed because the credit card information, name and ZIP code were combined in a single electronic file.

Retailers should separate such information and finish the transaction before asking for any personal information. Given regulators’ heightened interest in protecting consumers’ PII, merchants need to be fully aware of all relevant state laws and the legislative intent behind them.

Thomas Cohn is a partner in the New York City office of national law firm LeClairRyan and a former Federal Trade Commission regional director. He is a member of the firm’s retail industry team and can be contacted at Thomas.Cohn@leclairryan.com.

Retail Merchandiser magazine is pleased to present the points of view of many different industry stakeholders. If you would like to contribute your own guest blog to our site, please contact the editor at russ.gager@phoenixmediacorp.com.

 

The Internet and Sales Tax: What You Need to Know

Guest Blog by David Seiden

Why do some online retailers collect sales tax and others don’t? Why do some online retailers collect sales tax in certain states and not in others? Why are some states requiring online retailers to collect sales tax despite not having a physical presence in the state? Over the last 10 years as online shopping has gone mainstream, the issue of when an online retailer is required to collect sales tax has grown increasingly murky.

In the “good old days,” sales tax collection on retail sales was straightforward. A consumer would go into his or her local store, buy merchandise and pay sales tax at the register. Today, many local retail stores have either gone out of business or been replaced by large national retailers. Consumers spend more time “shopping” on their computer than they do in stores. The result is a significant drain on state sales tax revenue, which – coupled with the downturn in the overall economy – has resulted in significant budget deficits in many states.

Most of these states realize that the only way to curb the drain on sales tax revenue is to aggressively enforce their existing tax laws and adopt new laws that would require online retailers to collect sales taxes regardless of whether the company has a physical presence in the state or not.

The central issue that transcends both the enforcement of existing sales tax laws and the adoption of new tax laws involves the concept of “nexus.” Nexus is typically defined as a seller’s minimum level of presence in a state before such state can require the seller to collect and remit sales tax. While the term “nexus” is not overly complicated to understand, how states apply the term has been vigorously debated in the courts and in Congress for many years.

In 1992, the U.S. Supreme Court (the “court”) ruled that before a state can require a seller to collect sales tax, the seller must have more than a “de minimis physical presence” in the state. Despite the court’s 1992 ruling, numerous state courts have held that a business with no physical presence in the state may, under certain circumstances, be liable for collecting sales tax on merchandise shipped into that state.

For example, in 2008 New York state adopted the so-called “Amazon tax,” which expanded the definition of what constitutes a vendor in New York. This new law, named after Internet retail giant Amazon.com, permits New York State to require certain out-of-state Internet retailers, with no physical presence in New York, to collect sales tax on shipments made into the state.

Since 2008, more than a dozen other states have adopted similar Amazon tax laws, with new states jumping onboard every day. Until either the court decides to hear a case involving the Amazon tax or until Congress decides to act on this issue, states will continue to impose nexus on out-of-state retailers aggressively.

During this time of sales tax uncertainty, online retailers should closely monitor their potential exposure in uncollected sales taxes and implement procedures that can help minimize future liabilities. For example, we recommend to our clients that if possible, they should file sales tax returns even if they show zero taxable sales. This way, the company starts the statute of limitations – the number of years a state can “go back” and access tax­ – which is generally three years in most states.

David Seiden is the partner-in-charge of Citrin Cooperman’s state and local tax practice. Citrin Cooperman is a full-service accounting and consulting firm.

Retail Merchandiser magazine is pleased to present the points of view of many different industry stakeholders. If you would like to contribute your own guest blog to our site, please contact the editor at russ.gager@phoenixmediacorp.com.