Saturday, May 12, 2012

Same Song, Different Dance?

Let me tell you a cautionary tale, one you probably already know...

Your company has some burdens, costs of doing business where you live.  Could be property taxes, licenses, etc.  Mandated costs that you have a legal obligation to pay.  You price your product to make sure you cover those costs, but even then you don't have full control over your prices.  There are still limits to the price for which you can realistically sell your product.

Then some business from out-of-state, one who has lower costs because of his geographical advantages and lack of obligations, comes in and wants to sell what you sell, but at a lower price.  Of course, he is only doing it to gain market share and hopefully put you out of business, nothing different than you would do.

Then only difference is that he has no skin in the game.  He pays nothing to your state.  He employs nobody in your area.  He doesn't even have to follow all the same rules you have to follow.

As he takes away your market share, you don't just lose profits.  You lose the ability to cover those fixed costs, those legal obligations.  You have to either find ways to charge more to your existing customers, or go out of business.  It is a lose-lose proposition.

And when you can no longer pay your obligation to the state, the local economy loses and more people are out of work, thus scrambling to find the lowest cost anything, regardless of the consequences.  It is a vicious downward spiral.  To top it all off, at the end of the day, there is no control over what this out-of-stater might do after you are gone.

Seem unfair?

Some of you might think I'm talking about the Main Street Fairness Act, sales tax, and Amazon.  Funny thing is that there is a parallel problem going on that also fits this story all too well.

Electricity.

The State of Michigan has regulations and burdens on the two utilities - Consumers Energy and DTE - including making them invest heavily in renewable energy - a worthy but expensive venture.  The state also requires them to have the ability to offer power to every potential customer in the state.  And the state controls the prices they can charge to their customers.  Currently the state allows a 10% cap on out-of-state electricity to be sold in MI.  Some people want to raise that cap to potentially near 40% - but without releasing our two utilities from their expensive burdens.  Sure, a few people would save money on electricity for a short period of time, but the ramifications to the economy would be felt far beyond the savings.

You would think that with all the discussion on the Main Street Fairness Act and what allowing Amazon to work without the same burdens as other businesses is doing to local economies everywhere, people would get the ramifications.  Instead we have to fight the same old fight one industry at a time.

The song remains the same.  Maybe we need to change the dance?

-Phil Wrzesinski
www.Philsforum.com

PS  This is a departure from my usual types of posts.  I don't like to get political, just want to point out that the same conversation we are having here in retail is happening in all kinds of industries.  Before anyone bashes me about free market, etc., I get the concepts of free market economies and competition and how at the end of the day the customer should be in control.  The two issues here are first, that the market isn't free.  Different companies face different - legally mandated - burdens.  And second, the customer doesn't understand the economic impacts beyond his or her own pocketbook.  Someone somewhere has to pay for lower prices.

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