Locally owned businesses are facing several challenges this holiday season, ranging from recuperating from losses after Hurricane Harvey caused stores to close for several days, to competing against online retailers and major corporations.
According to recent sales tax data, the cities of Sugar Land and Missouri City anticipate little to no growth in sales tax revenue for fiscal year 2017-18.
Additionally, the U.S. Census Bureau reports e-commerce sales have climbed steadily throughout the past decade, indicating an upward trend for online shopping. Based on a sample of 12,000 retail businesses, data shows an increase of retail sales coming from online transactions, growing from 3.2 percent in 2007 to 8.5 percent in 2017.
“While sales taxes are owed from online purchases, if the company does not have a physical location in Texas the state cannot compel the vendor to collect and remit them,” Sugar Land spokesperson Doug Adolph said.
Steady sales tax
Based on current sales tax data, Sugar Land staff projects no growth in sales tax revenue, remaining flat at approximately $48 million, Budget Officer Justin Alderete said.
City officials said there may be several reasons for this, including the decline in industries like oil and gas.
“We’re still actively monitoring [sales tax]as we always do to see what our collections are that are coming in every single month, and we look at it by what sectors are increasing and what sectors are decreasing,” Alderete said.
It is also difficult to quantify the effects Harvey and online retailers had on the city’s sales tax, Adolph said.
Collection from e-commerce depends on various factors, such as the locations of the businesses, order placement and order fulfillment, according to the Texas Comptroller of Public Accounts Office.
“It’s not a straightforward matter,” Alderete said.
However, February is the month the city receives the largest allocation of sales tax revenue from the Texas Comptroller, he said.
Because there is a two-month period between when sales tax is collected and when it is remitted, February’s allocations reflect sales from December, which is when the city sees a spike in sales activity due to holiday shoppers, Alderete said.
“Last year, we had significantly lower collections for February, which is indicative of lower than expected Christmas sales,” he said. “Once we get past our February sales tax, we generally know how the rest of the year is going to perform with some degree of certainty.”
Financial experts hired by Missouri City project a limited growth of 1.4 percent in the city’s sales tax revenue for FY 2017-18, according to city documents.
Missouri City received approximately $8.55 million in sales tax in FY 2016-17, according to the Texas Comptroller’s office. Experts hired by Missouri City estimate $8.69 million will be collected for FY 2017-18.
“Most city managers will tell you the most volatile revenue source is sales tax,” City Manager Anthony Snipes said.
The city’s sales tax revenue has leveled out through the years, but the city does not receive much from online transactions, Snipes said.
Snipes also said it is difficult to quantify the effect of Harvey on the city’s sales tax collection. Although businesses closed for several days, there was an influx of residents purchasing supplies and gas beforehand. Even afterward, people were also buying food and supplies to donate to residents affected by the flooding, he said.
“We’ve probably seen some leakage [in sales tax], but because we’re not as dependent on that, we have not seen as much of an impact,” Snipes said.
Recovering from Harvey
Lauren Culpepper, owner of Ally & Belle boutique in Missouri City, said the community has shown a lot of support for her business in the aftermath of Harvey. The store, which closed for a week during the hurricane, held an event to raise money for those affected by the hurricane, Culpepper said.
“This holiday season will be really interesting to see how much [Harvey] affects us because I know the holidays are always hard anyway,” Culpepper said. “Financially, you always feel a little stressed and strapped, and it can be a tense time. But this year it’ll be really different for a lot of families.”
Ally & Belle opened in July, and the store’s busiest month was immediately after Harvey when customers were buying items, such as the “Houston Strong” and “Texas Strong” T-shirts, she said.
“People want to shop, but they want to shop for a good cause,” she said. “They like to support [local businesses], which is awesome.”
Brooke’s Boutique opened in Missouri City in November 2013 and overall, business has been steady this past year, owner Cecile Reynolds said.
“[Harvey] did affect us, especially in August—that’s when we were closed [for five days]and even into September,” she said. “We did see a decline in those months, but October was really good. We actually did better this October than last October.”
Finish Line Sports in Sugar Land has been serving the community since June 1985, and the business has seen different trends, going up and down in cycles, owner Andy Stewart said.
Harvey had a significant effect on the store, which closed Aug. 28-29, he said.
“We’re still a little down—less people are coming in,” Stewart said. “Our races are slightly down; our sales are slightly down. It’s getting better though.”
Small Businesses Stay Competitive
Culpepper said she thinks small businesses have more challenges competing against bigger companies.
“It’s just the way that it is,” she said. “Big-box stores will always be able to pull a lower initial cost because they’re ordering in [bulk], so they can mark down their items.”
Staying competitive is a big issue since many local businesses lack the resources of major retailers like Target, she said.
“They buy at a much higher volume than we do, so they’re able to give better discounts,” she said. “I can’t compete with Target prices.”
Reynolds said she thinks competing with major retailers—online or not—puts a lot of stress on local businesses.
“We don’t put a lot of money on marketing like the big players probably do in terms of television and radio and print,” she said. “We don’t do any of that. Truly, most of it comes from social media, so we’ll put marketing money on social media, but it’s word-of-mouth, honestly.”
Reynolds said she has focused a lot of effort addressing her patrons’ needs, promoting sales events and new inventory, making it easier for them to make purchases digitally or over the phone so they may shop remotely. She also uses social media to host live events and post updated information.
“We combat a lot of the online sales by really customizing our customer service to them,” Reynolds said. “When you’re in the community, you know a majority of your [customers]by name and what they’re looking for and who buys what, so that’s what online [retailers]can’t do for you.”
Stewart said he has noticed more people shifting toward digital shopping.
“Amazon is everybody’s biggest competitor, probably,” he said. “Online [retail]is a completely different [business]model. It’s all about huge numbers with Amazon and other online dealers.”
One advantage Finish Line Sports has over competitors is it has been part of the fabric of the community for 32 years, cultivating long-term relationships with sports teams and residents.
“The thing is, we thought about having our own online sales and stuff like that, but we’re a person-to-person shop,” Stewart said. “We’re small, and we rely on the personal touch.”
The store is only 700 square feet, and Stewart is the only full-time employee, but he said stores like his are still in demand because consumers like to come in and experience the merchandise in person.
“I think there will always be a demand,” Stewart said. “I think it’ll be a sad world if everybody just got on their computers and just bought everything without seeing it and had it shipped to them and never left their house.”