The multichannel challenge
[This story was originally reported by Internet Retailer]
How does a national wholesale business start selling directly to consumers online without cannibalizing customers from its dealer base? This was the challenge facing fishing products manufacturer Simms Fishing Products in 2012, when they decided to sell directly to customers on the web in addition to maintaining their wholesale market of 450 specialty retailers.
STEP 1 – CHARGE SALES TAX
Simms decided to charge sales tax on their direct sales in all 50 states, even though the tax code in many states may not require it. Andrew Demoss, Senior Accountant for Simms, explains it this way: “We didn’t want to create a competitive advantage that would draw consumers away from our dealer base….”
In addition to charging tax, Simms decided to charge full price on their ecommerce sales and avoid free shipping offers. This also helped them avoid undercutting their dealers by offering the same products at cheaper prices.
By not charging the lowest price possible, Simms risked hobbling their ecommerce channel, driving consumers away with higher prices. Yet, to date, their ecommerce business is booming and they have far exceeded their sales goal (more on this below). This is due partly to the fact that customers can get the full selection of Simms products on their site, while other retailers offer only smaller selections.
STEP 2 – IMPLEMENT A FLEXIBLE ECOMMERCE SOLUTION
Deciding to collect sales tax was only the first step in Simms successful transition into multichannel sales. The company needed an ecommerce solution that would serve them across their three sites: SimmsDealers.com, for its specialty retailers; SimmsPro.com, for professional fishing guides and government agencies; and SimmsFishing.com, for consumers.
Simms chose to implement the open-source Magento Enterprise platform from X.commerce Inc, with help from Lyons Consulting. The open-source technology allowed developers access to the code base so they could add necessary features and functionality for each site.
STEP 3 – AUTOMATE KEY FUNCTIONS INCLUDING SALES TAX
Simms’ approach to multichannel sales also shows us that automating key business functions is a vital part of success for growing businesses. This is especially evident when you consider the challenge of collecting sales tax in all taxing jurisdictions where you do business. (There are over 11,000 tax jurisdictions in North America).
True tax compliance includes:
- Tracking tax rates and rules in all taxing jurisdictions where you do business;
- Managing sales tax exemptions;
- Filing state and local sales tax returns in a timely manner; and
- Keeping accurate and accessible sales tax records for every transaction.
In order to avoid massive compliance headaches and potential state penalties for incorrectly handling sales tax, Simms implemented Avalara’s AvaTax plugin for their Magento solution. AvaTax automates the sales tax process from end to end, including calculation, exemptions, filing, and reporting. It also works in a multichannel environment, in this case, connecting to Simms’ Microsoft Navision back-end financial and inventory management software.
With AvaTax, Simms was able to handle the dramatic increase in sales tax obligations and avoid the risks associated with non-compliance.
Simms reports the following results:
- No drop in their wholesale business since launching their ecommerce site;
- Sales outperforming their goals by 75% to date; and
- A projection to double sales next year over 2013.
While charging sales tax in every state may not be the key for every business wishing to expand into multichannel sales, having the right technology to automate key business functions remains essential.