From:
To:
Date:
Subject:
WENDY SCHOMAKER <SCHOMAKER@ci.manhattan.ks.us>
GW08B.groupwise1("comments@ecommercecommission.org...
8/25/99 4:00PM
E-Commerce Comments
Below is what is being submitted by the City of Manhattan, Kansas, with
regard to E-commerce.
August 25, 1999
Heather Rosenker
Executive Director
Advisory Commission on Electronic Commerce
3401 North Fairfax Drive
Arlington, VA 22201-4498
Dear Ms. Rosenker and Members of the Advisory Commission on Electronic
Commerce:
On behalf of the City of Manhattan,Kansas, I wish to urge the
Commission's careful consideration of electronic commerce in light of
its
certain impact on future sales tax revenues for local governments and
potential inequities between local mainstreet businesses and Internet
commerce operations.
The City of Manhattan is a rural community that is approximately 120
miles west of Kansas City and is home to Kansas State University. Since
the
emergence of the electronic commerce issue, the City has been working to
quantify the potential loss of sales tax revenue as a result of the
moratorium on Internet sales tax. Recently, the City became aware of a
new
market report (see attached) completed by the Boston Consulting Group
for
Shop.org, an Internet Commerce Trade Association, which helps to
quantify
this impact. The report, dated July 1999, indicates that 0.5% of all
retail
sales in 1998 were made on the Internet. Based on this data and the City
of
Manhattan's retail sales figures, the 1999 impact on the City is $35,132
loss in sales tax revenue. With the exponential growth predicted in
future
years, it is evident that the loss of sales tax revenue in the future
will
be disastrous if an equitable sales tax formula is not achieved.
Sales tax is a primary revenue source for the City of Manhattan and
other local governments. Sales tax, unlike property tax, takes into
account
the cost of non-residents, such as visitors and those who commute into
the
city for work purposes. Also, at time when federal and state funding
support is dwindling, local sales tax revenue becomes even more vitally
important.
The City of Manhattan urges the Commission to put in place an
equitable sales tax formula for Internet sales tax and put an end to the
moratorium. This action would not only protect a key source of local
revenue, which is utilized for vital community services, such as public
safety and infrastructure, but it would also ensure a level playing
field
between local mainstreet businesses and companies having only an
Internet
presence.
I would like to thank the Commission for its work and its careful
consideration of this important issue. Should you have any questions
regarding the City of Manhattan's position, please contact me or Gary D.
Greer, City Manager.
Sincerely,
Roger P. Reitz, M.D.
Mayor
CC: City Commission
Gary D. Greer, City Manager
Curt Wood, Director of Finance
U.S. Senator Sam Brownback
U.S. Senator Pat Roberts
U.S. Congressman Jim Ryun
Kansas Governor Bill Graves
Kansas Senator Janice Hardenburger
Kansas Senator Lana Oleen
Kansas Representative Kent Glasscock
Kansas Representative Jeff Petterson
DS/wrs
99225
Attachment: Shop.org Internet Market Figures from Study by Boston
Consulting Group
ONLINE RETAILING TO REACH $36 BILLION IN 1999 Shop.org Releases New
Market
Figures in a Study by The Boston Consulting Group New York (July 19,
1999) The rapid growth of online retailing in North America continues, with
revenues expected to top $36 billion by the end of the year and a
projected
growth rate of 145% in 1999. These findings were released today by
Shop.org,
the trade association for online retailers, in a report conducted by The
Boston Consulting Group. Based on data from 328 online retailers, 158 of
which participated in a detailed survey, the study provides the first
complete picture of actual online retail revenues for 1998. Total 1998
online revenues across all categories reached $14.9 billion,
representing
0.5 % of all retail sales. Online orders in 1998 were up 200% and the
number
of online shoppers was up 300%. "While it is commonly acknowledged that
Internet retailing is coming of age, our research shows that
opportunities
exist to further grow the category," said Donna Iucolano, Chair of
Shop.org's Committee on Internet Shopping Research. "Challenges and
opportunities are being dealt with on a daily basis by online-only
'pure-play' retailers, traditional stores, catalogers and manufacturers.
The
specific findings and lessons reported in this study illustrate that
retailers of all kinds and sizes are finding new and innovative ways to
market and sell products online to the global consumer." "Most people
think
e-commerce is mainly being done by Web-only businesses, but 62% of the
$14.9
billion of online revenues in 1998 were from retailers who had
businesses
that predated the Web. These catalog, call centers and brick-and-mortar
retailers are a growing force behind the continued rapid growth of
online
retail," said David Pecaut, Senior Vice President of The Boston
Consulting
Group and leader of its E-Commerce Practice. The Shop.org/BCG study
compares
multichannel retailers - those with brick-and-mortar, call center or
catalog
operations who also sell online - with "pure-play" retailers who sell
strictly online. A number of key differences are cited: Currently,
pure-play retailers are dominant in the collectibles (person-to-person
auctions), books, music/video and automotive categories. In categories
such
as financial brokerages, consumer electronics, apparel and computers,
the
majority of sales are from multichannel retailers. Because multichannel
retailers have the advantage of an existing brand and infrastructure,
they
are more recognizable than online-only competitors in some areas. But
online-only retailers have begun using aggressive online and off-line
marketing and advertising campaigns to build their own recognizable
brands.
The two channels work the Web differently, with online-only retailers
generating 6% of revenues from affiliate sites, compared to only 1% for
multichannel retailers. Pure-play retailers earned 12% of revenues from
high-margin supplemental sources versus less than 1% earned by
multichannel
retailers. Customer acquisition costs for online-only retailers are $42
per
customer, almost double that for multichannel retailers at $22 per
customer.
While multichannel retailers spend heavily on customer retention (16% of
their marketing and advertising budget), online-only retailers spend
only 3%
on retention, devoting most of their resources to customer acquisition.
Online-only retailers tend to outsource back office functions such as
managing inventories and filling orders, while multichannel retailers
more
often outsource Web site development and maintenance. The report draws
on
the recent experience of savvy online merchants to offer eight lessons
for
online retail success: Develop relationships of trust and security with
customers to overcome inhibitions about online shopping. 'Imprint' new
customers by becoming their first point of reference and creating a
sense of
comfort that can translate into customer loyalty. Exploit the
connectivity
of the Web by leveraging affiliate programs and portal relationships
that
drive customers to your site. Provide end-to-end customer service
throughout the purchasing cycle - from order taking to delivery to
after-purchase services such as responding to customer questions and
complaints, merchandise returns, exchanges and billing. Use rich
information to increase sales and product mix; providing customers with
more
information helps them make better purchasing decisions and often
encourages
them to buy more high value products. Leverage offline relationships to
gain online customers by providing them with a means of researching,
acquiring and servicing their purchases in person, by phone or by
Internet.
Develop interactive merchandising. In other words, replicate the
in-store
sales interaction by providing consumers with opportunities for two-way,
personal and interactive communications. Create a powerful brand
promise
around the total retail experience, including the online process and
fulfillment. For more information, or to purchase a copy of the 32-page
Executive Report, visit <http://www.shop.org>.  Copyright 1999, The
Boston
Consulting Group, Inc. All rights reserved