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The death of shopping distance and its coming impact on news publishers

It’s time to take the “e” out of e-commerce. We added that vowel to explain the digital mediation of buying and selling, some 20 years ago. It seemed so cool and so novel that governments granted e-commerce a short-term tax exemption. The idea: spur this groovy new way of doing business.

Flash forward to the woe-is-us, Western Civilization-may-be-in-eternal-decline teens. In the US, states — starved for tax revenue — have finally imposed the same sales taxes on internet commerce that they collect from bricks-and-mortar retailers.  By the end of 2014, some 13 states, representing half the US population, will have finally withdrawn the sales tax exemption for e-commerce.

The argument: It’s time to level the playing field for shopping. It’s a logical argument — if it were 1992. It’s not.

Amazon, the company we knew as Amazon.com for a long time, is now a giant shaking the retail landscape.  Knowing it would inevitably be forced to accede to sales tax collection, Amazon prepared, quietly, a decisive pivot: same-day delivery. It is now moving forward to compete head-on with local retailers. Jeff Bezos — leveraging his estimated 30 million registered customers — continues to play his long game of grabbing market share and sacrificing margin, much to investors’ chagrin

With that pivot, the retail landscape is now fast changing, as behemoths like Walmart and Best Buy adjust to the Amazon strategy, offering their own takes on same-day delivery; other retailers will be forced to do the same. Do the big boxes – stores like the US’s Home Depot, Target, and Bed, Bath and Beyond and eventually the UK’s Tesco and Germany’s Pratiker — compete on price, brand, shopping experience or delivery? It’s not just the terrestrial guys that are responding: both eBay and Google just announced their own same-day delivery “tests” in the Bay Area. Even Sears and Kmart, now owned by the same company, are getting into the act, copying, a little late, Amazon Prime’s two-day “free-shipping” program.

Those winds of retail change soon will blow on newspaper publishers. What we don’t know yet is whether they may cause a downdraft in retail ad revenues or an updraft. As early as 2013, we’ll see movement in retail ad spending, as big box retailers test ways to compete with Amazon. They could increase local marketing to better compete, or decrease to fund their own delivery operations.

This retail shift may be highly problematic for news publishers. Retail has been the most stable of the industry’s three ad revenue streams. Print classifieds are obsolescent, with online classified revenues a pittance compared to what’s been lost forever. National revenues have already seen great digital disruption; the mobile ad revolution is likely to further drain national revenues of news companies.

So retail, which accounted for just 47 percent of US newspaper revenues 10 years ago, now accounts for 57 percent. Figure that about a quarter of those retail dollars are driven by big box pre-prints, those “free-standing inserts”, or FSIs, which add great bulk to the Sunday paper, spurring Sunday circulation sales as well.

It’s not a further disruption that news publishers need. While all-access and digital circulation schemes now offer new hope of reader revenue stability and growth, the high-single-digit loss in ad revenue, year after year, is swamping that gain. If only ad revenue could stabilize, publishers hope and pray, reader revenue could return them to a path of growth unseen since halfway through the last decade.

Rather than a return to some stability, though, the Amazon advance reminds us that commerce — once the great generator of 25 percent+ newspaper profits — is still early in its digital-fueled change.

We came to understand the “death of distance”, as local newspaper editors could no longer monopolize their readers’ attention; anyone with a computer could directly access the Financial Times, the New York Times or the Hindustani Times. Today shopping itself is experiencing its own death of distance, as shopping now means walking to your front door to get what you want.

For publishers, this new challenge inevitably means either finding a new place in the consumer value chain, or relying even more heavily on direct reader revenues for survival. There’s some potential here as major publishers, including Hearst, Gannett and Tribune, are all in the early stages of launching marketing services businesses, essentially acting as regional ad agencies for small- and medium-sized businesses. Maybe marketing services will be just what local retailers want: to fend off the Amazonian beast.

What’s clear though is that the nature of shopping, of selling and buying, and the role of advertising itself are all in play. E-commerce now joins e-reading in our history books.