Thursday 10 January 2013, 12:13 | By Chris Cooke
Play.com to shut down retail site, will become marketplace
Play.com is no more, or at least the Play.com you know will be offline very soon. The parent company of the sometimes controversial mail-order website, perhaps best known for selling CDs and DVDs, yesterday announced that it was closing down the Play.com-branded mail-order operation, but would continue to operate its website as a marketplace for third party retailers.
Play.com was one of the first online operations to really capitalise on the tax benefits of selling low-cost mail-order products from the Channel Islands into the UK. As much previously reported, a tax exemption called Low Value Consignment Relief meant that such operators – based outside the European Union but within the customs zone – didn’t have to charge VAT on products under £18, giving them a 15-20% advantage over mainland retailers.
Founded in 1998 just as web-based mail order was taking off, although Play.com moved into other product areas where prices were not low enough for LVCR to apply, low-cost entertainment products remained key to the operation. Many other CD sellers followed Play.com’s lead in locating to the Channel Islands, of course, including the bigger British high street retailers who could afford an off-shore base (either directly, or by employing the services of companies like The Hut).
But the use of LVCR in this way – which saw ships full of CDs and DVDs sail from the UK to Jersey and Guernsey, to be mailed back one by one to the British mainland – was controversial and, it was eventually proven, an abuse of European tax laws. Many argue it also accelerated the demise of traditional music retail in the UK, with independent retailers unable to share in the web-led boom in mail-order, because if they set up their own mail-order sites from within the UK they could never afford to compete on price against Play.com et al.
After years of campaigning, UK Chancellor Of The Exchequer finally axed the tax relief for Channel Island-based companies last April. Since then many mail-order companies, many of whom for years insisted that they were Jersey or Guernsey-based for reasons other than the VAT-break, have shut their operations on the islands. Some have been investigating ways to continue using the LVCR benefit that still applies to other non-EU territories, though there are logistical and customs challenges. Which is perhaps why some are just considering giving up. Such as Play.com.
The company’s founders cleverly got out of the business once it became clear the UK government was finally going to act over LVCR abuse, selling to Japan’s largest online retailer Rakuten for £25 million in September 2011. It was already known at the time that Play.com would likely lose its 20% advantage on CDs and DVDs, but Rakuten seemed to think the wider Play business was now sufficiently diverse to weather that storm.
At the time of the sale, Rakuten boss Hiroshi Mikitani said: “Play.com is not only a pioneer in the market but also one of the UK’s most successful e-commerce businesses. We aim to leverage our e-commerce strength and experience to further expand and develop Play.com’s business model and channel its loyal user base, merchants, and deep product offerings into Rakuten’s global e-commerce network”.
But it would seem tax-free entertainment products were more key to Play.com than Rakuten realised, though when confirming that the company would no longer be selling goods itself yesterday, the firm’s current operators insisted that its marketplace platform – which allows other retailers to sell goods online – was “our main business area” anyway.
The shift means Play.com will pull out of Jersey completely, making 147 staff redundant. The streamlined firm will still have a base in Cambridge, with about 200 staff expected to remain with the restructured operation. The shut down of the main Play.com retail business will also result in over 60 redundancies in the UK. It’s thought that now about 550 Jersey people have now lost their jobs as a result of the removal of LCVR from Channel Islands operations.
Commenting on the development, Jersey’s Economic Development Minister Alan Maclean told the BBC: “I’m saddened, this is a Jersey business, set up in the island that did extraordinarily well, that became a global brand. We will work with other businesses and entrepreneurs to help them develop the next Play.com”.
Speaking for RAVAS, the campaigning group that successfully lobbied for the ending of LVCR abuse in the Channel islands, Richard Allen told CMU: “In 2004 a number of major retailers complained to the UK Treasury about the avoidance of VAT by Play.com and the damage that the allowance of Play.com’s offshore operation was doing to UK internet and high street retail. Play.com were innovators in LVCR-based music retail and the allowance of their business model by the UK authorities was responsible for the subsequent stampede of UK online retail to the Channel Islands. The simple reason UK business went there was because they couldn’t compete with Play.com because, unlike Play.com, they had to pay VAT”.
He continues: “It is somewhat of a vindication for RAVAS and those who have supported us that Play.com finally admits that LVCR was the backbone of its business. Whilst we do not relish the fact people have lost their jobs, we hope this marks the beginning of the end of LVCR-based VAT avoidance schemes which do nothing more than damage livelihoods and siphon tax income and employment out of the UK. Both the UK and Jersey Governments have a lot to answer for in allowing this trade, particularly Jersey who wasted a million pounds – on a pointless judicial review [to try to stop the axing of LVCR] – that they could have given to those who have lost their jobs”.