Despite the negative PR for Wine.com, we can see there’s a lot of energy on this issue. Maybe there’s a way to channel it into some positive change.
Wine.com has taken a lot of criticism over the last few days, some of it very personal and unprofessional, and most from anonymous sources who do not disclose their full name or the companies they represent. Remember that behind Wine.com is a team of good people who are passionate about wine and how the Internet can help people enjoy it. The Wine.com team spends incredible time and energy trying to better understand our customers and how we can serve them. That is the foundation of our business strategy. Our strategy has never counted on state shipping laws changing, because while that would be nice if it happened, it is not something on which we can depend.
Also, remember that there are two sides to every story, so here is ours. Wine.com wants two things:
First and foremost, open markets. We’d like to see all states open up to interstate shipping of wine. This would be best for consumers, best for the health of the online wine business and best for Wine.com and our customers. As an example, Virginia recently did this, and we applied for and received a direct shipper’s license from the state and immediately closed our Virginia warehouse. We now serve Virginia customers from our Florida warehouse, which offers a better product selection and lower prices than we were able to offer from within Virginia. We collect and pay sales tax to the state of Virginia. We’d like to see other states follow suit, but are concerned with the developments in Illinois and Texas, which appear to be headed the opposite direction. (People often confuse wineries with retailers when discussing state shipping laws – we’re focusing here just on the issues pertaining to retailers).
Second, we want fair competition. How would you feel if the government required you to spend millions of dollars every year to comply with its laws, while letting your competitors play for free? Whether markets are open or closed, we believe all retailers should be playing by the same rules. It is not right for states to selectively enforce their laws, causing increased cost and complexity to some while others fly under the radar. It is also not good for our customers, as the costs of compliance and collecting and paying state sales tax makes us uncompetitive in many states. As an example, in 1999 Washington notified Wine.com (then operating as eVineyard), that it must stop selling and shipping to Washington consumers from outside Washington. Wine.com ceased selling to Washington consumers, then opened up a warehouse in Washington and applied for and received a retail license to sell wine in Washington. We buy from Washington wholesalers, collect and pay Washington sales tax and service Washington customers in this way. We have patiently waited for eight years for the state to either open up to out-of-state shipping or enforce their laws with other retailers, but nothing has happened. With the exception of a handful of reputable retailers, nearly all others ship into Washington without a license, local store or sales tax. This is not fair, and puts our customers and stakeholders at a disadvantage.
Today, Wine.com finds itself with neither open markets nor fair competition – most states are both closed to outside shipping and unfair in their enforcement of the laws on their books. After nearly a decade of waiting for and asking states to either open up or fairly enforce their laws, incurring literally millions in extra costs not incurred by our competitors, we’re ready for change. The status quo is no longer an option. So what can we do?
One option is to play by the same rules as most other online retailers – ship illegally and don’t charge sales tax. We don’t like the state laws and they’re rarely enforced, so let’s ignore them, close all our local distribution centers, ship from a central location to a larger number of states and not charge sales tax. Selling to more markets, and at lower prices without sales tax, we’d instantly grow our revenues. And without all the local warehouses and the complexity of running separate inventory and websites for each state, our costs would decrease and our profitability would improve. Believe me, there are days when this looks like a pretty good option. But we haven’t gone there, because if wine is going to be a viable and legitimate online category and grow and thrive in the long run, we think it’s got to be done the right way. This means operating within the law to serve our customers, while working to change the laws with which we all seem to disagree.
Some have suggested we join lobbying efforts by other retailers, specifically the Specialty Wine Retailers Association. While we encourage those efforts and don’t begrudge people donating to that cause, we believe it’s fundamentally flawed to lobby for changing laws you are currently breaking. We don’t buy the argument that it’s okay to ignore the laws just because they’re outdated, not consumer-friendly and difficult/costly to implement. If we throw our hat in that ring, we lose the opportunity, as a licensed, tax paying retailer in a given state, to have a meaningful and productive dialog with that state. We will join the SWRA the minute they establish a code of conduct that requires its members to operate within the law. Only then can that organization gain the credibility it needs to make a difference.
Others have suggested we launch our own lobbying efforts, and that is the path we have chosen. We have approached several states, in which we have legal standing, and asked regulators to consider our situation. We have described our operating model and costs of compliance with their laws, and we have pointed out that we are one of a small number of companies who comply with those laws. The only way to base this argument on facts was to place orders from other online retailers who are actively and publicly soliciting customers in other states (see Google), in order to confirm they do in fact ship to those states. We did not single out or target any particular retailers, because the list of illegal shippers is large. (We need to correct a mistake in an earlier article from Wine Market Report, who stated erroneously that BevMo! ships illegally. That is not our belief – in fact they appear to be one of the few companies who, like Wine.com, are working within the law). We also did not approach states anonymously, but made it clear who we are and why we feel the need to take action, even if that means some negative PR or response from others with a vested interest in the status quo. We have asked the states to either: 1) open up to out-of-state shippers, so we too can do business without the costs of compliance, or at the very least 2) fairly and consistently enforce the laws they currently have. We have made it clear that we’ll accept either outcome. The only thing we can’t accept any longer is the status quo -- closed markets and unfair enforcement.
We can’t predict whether a state will take action or which course they’ll follow. Some appear to be interested in opening up, others in fairly enforcing their current laws. While we understand our actions will not be popular with folks who are benefiting from the current state of affairs, we owe it to our customers and shareholders to take a more proactive approach than we have in years past. We are willing to take risks to challenge the status quo, including negative PR. But we also suspect a lot of consumers may be unaware they are currently buying from companies who ship illegally, and when they find out, they may prefer to buy from someone who is compliant with state laws. For example, many of our customers are corporate gift givers, and we think they deserve to have a legal way to purchase wine gifts for their clients.
Wine.com has been accused of and called a lot of things over the last couple days. That can be expected from those who currently benefit from illegal shipping. But if you’re going to criticize us so vehemently, at least have the courage to disclose your full name and the company you represent, rather than hiding in anonymity and throwing in grenades from the sidelines.
We don’t expect everyone to rally around the cause of fair enforcement of the current state shipping laws. But we should be on the same side with regard to opening up more states to out-of-state retailers, so take some of the energy we’ve seen over the last couple days and focus it on your state regulators.