Mark Wuller, National Retail Practice Leader and Giles Sutton, National Retail Tax Practice Leader Grant Thornton January 2012 www.grantthornton.com
Multichannel retail — the merging of traditional brick-and-mortar retailing with online and mobile retail channels — involves far more than allowing customers to purchase items through a website. Multichannel retailing presents ample, seemingly boundless opportunities for brand engagement and interaction with customers across new platforms. Yet inevitably, these new technologies, platforms and sales channels come with new risks and challenges for companies to manage.
Retail websites deepen relationships with customers. With the growth of e-commerce, many retailers are using their websites to enhance their relationships with customers through offerings like live chats with service representatives and educational Web content that helps customers better choose or use the products they buy. However, the popularity of e-commerce has also brought about many new risks for retailers, including increased competition and quicker customer price comparisons. Implication: Retailers must integrate their storefront and website operations, both conceptually and operationally; attend to data security risks in order to keep customer information safe and avoid costly security breaches; and stay on top of changing state and local tax legislation in the areas of nexus, apportionment and global retailing.
Smartphones change the retail experience. Seventy-eight million people in the United States are currently using smartphones. A large number of people use these devices to search for stores, compare prices and research product details. Some retailers are producing mobile applications — or “apps” — to create more opportunities for sales, customer interaction and an enhanced in-store experience. Yet smartphones have also shifted power toward the consumer in unprecedented ways. For example, while shopping, smartphone users may search online for better prices or selections elsewhere. Implication: Retailers will want to maximize the potential opportunities of mobile applications, but they must carefully consider both competitive and security risks. Many mobile apps are not compliant with Payment Card Industry (PCI) data standards — information security standards established by the major debit and credit card companies — and therefore may not be safe for use in sales transactions.
Social media is becoming integral to the consumer experience. Social media has also become a popular consumer engagement tool. A growing number of retailers use it as an opportunity to increase customer awareness and loyalty and provide additional outlets for customer service, advertising and feedback. But negative attention via social media can spin out of control quickly if left unchecked. Implication: It is imperative for retailers to monitor social media and viral videos in order to respond promptly and informatively to customer questions and to manage problems swiftly.
Internet coupons gain popularity. GrouponTM, LivingSocial and many other Internet coupon sites have grown immensely in popularity over the past few years. For retailers, partnering with these companies to create special offers can help them reach new customers and provide an efficient means of marketing and advertising. However, retailers may make only 25 cents on the dollar — and sometimes even less — on these special offers, and there is no guarantee that customers will return after taking advantage of one-time deals. Implication: Retailers must look at the reputational and financial factors involved in partnering with Internet coupon sites to determine whether such a partnership would be a good business decision.
Multichannel retailing gives rise to more third-party vendor relationships. As their companies have expanded, many retailers have outsourced business functions such as website hosting, shipping and credit card processing. However, retailers must ensure that their third-party service providers take precautions for backing up data and keeping customer information safe. Additionally, retailers selling digital products through third-party vendors can run into new tax situations. Implication: Retailers should ask for an independent auditor’s report on third-party controls, such as Service Organization ControlSM (SOC) 1SM, SOC 2SM and SOC 3SM reports. Retailers must also be familiar with their state tax regulations and make sure that contracts with vendors clearly stipulate tax responsibility. They will want to make sure their tax personnel and external advisers are up to date on changing state tax laws that affect e-commerce.