The Supreme Court handed states broad authority Thursday to require online retailers to collect sales taxes, overturning a pre-Internet court precedent that had effectively exempted many merchants from collection duties.
Source: US Supreme Court Rules States Can Require Online Merchants to Collect Sales Tax
The third party marketplace remains a growing and disruptive force in footwear. While the sneaker market is well over 100 Billion a year and online third party sales are probably right at 2 billion which is obviously less than 3% of the overall market it’s a market that has created a number of entrepreneurial opportunities. The recent influx of venture capital money to startups like GOAT and StockX, as well as the launch of online stores like HBX by Hypebeast, and Slang by Solecollector and Complex is considerable and shouldn’t be overlooked.
As a third party marketplace seller I know firsthand the potential available to a person interested in making a living from selling sneakers. I had one of the best Amazon stores for years; generating over 3 Million dollars at one point from 2011 to 2016. There are sellers on eBay and Amazon easily making over a million in resale in footwear annually. The third party marketplace is obviously much more than sneakers. That’s why this ruling is disturbing. A host of family owned businesses benefit from the looser guidelines and restrictions placed on online sellers. Third party resale is basically a job manufacturing facility for the U.S. These small businesses tend to hire 1-5 people which is a boon for states. I actually had employees at one point when I ran my Amazon store.
Today the Supreme Court overturned a 1992 ruling and they will now force online sales/sellers to adhere to sales tax guidelines for states. This is such a complex issue for small businesses that I wouldn’t hesitate to state that a lot of family owned businesses won’t be able to comply to the multiple rules and sanctions and they will fold. Basically in the process of implementing the ruling states are wiping out small businesses, or they will be wiping out small businesses. The policies will undoubtedly lead to fewer people taking a chance on becoming entrepreneurs which could play a part in the next recession as businesses try to navigate the complex tax laws of the states they are selling products in.
One of the biggest questions I have as it relates to sneakers is how will this affect two of the biggest disruptors of third party footwear sales in GOAT and StockX? The companies act as a proxy to third party sellers. StockX is located in Detroit. If a seller moves a shoe through the company they aren’t directly selling to an individual. They are selling it to StockX. StockX will undoubtedly pass on the tax cost to the customer, but it creates a completely different set of issues for the startup as they will now have to account for taxes in every state. Fees could possibly go up for sellers and buyers and what is becoming a very good platform could find itself struggling to maintain the growth that has seen it add over 100 employees since its inception. GOAT recently acquired Flight Club so they have in place people who understand the tax laws as FC is a brick and mortar. GOAT has also brought in a new COO Lizzie Francis which gives them a leg up in dealing what is about to happen to their platform with this new ruling.
Sneaker market GOAT hires COO Lizzie Francis and makes a play for women sneaker shoppers
My opinion is that this ruling is bad. I can’t state this in any other way. It could be a good thing for sneaker companies as the third party often shapes the SRP of shoes forcing brick and mortar stores to adjust their prices through price matching to compete with online stores. This is a consumer’s market however and adding another layer of taxes onto shopping that is growing and becoming more commonplace could slow economic growth and hurt the economy as I stated earlier. This is not a good thing for any of the parties involved.
Additional Thoughts:
With this court ruling StockX just became the most important player in the third party marketplace for sneakers and could add on more offerings from jewelry to sports apparel. This is the moment where Amazon’s private label push into athleisure could actually take a hit. If I were a consultant to StockX right now, my advice would be to add more server space and more techs. Come up with a stronger rewards program. StockX should be looking hard at being the proxy or fulfillment center for the third party sneaker and apparel industry. I know for a fact that I could buy 100 Nike NFL jerseys tomorrow, but I won’t because I honestly don’t want to deal with the headache of taxes. There are a thousand sellers like me who are looking at StockX and wishing that they had a better set up for the sale of lower end shoes with a better system in place for minimum offers by buyers. There is a BIG opportunity here for someone willing to figure out the tax codes for all states and handle fulfillment.
