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Amazon.com is poised to buy household-goods retailer Quidsi, the parent of Diapers.com, on Monday for $540 million in cash and debt. (Update: On Monday, Quidsi confirmed the deal with VentureBeat.)
In so doing, the giant online retailer looks set to fend off its most convincing challenger in years. Buying Diapers.com’s operator will keep it away from Walmart, which was reportedly interested — arguably worth the price by itself. And Amazon, long a master cost-cutter, may learn something from Quidsi’s highly automated robotic warehouses.
Quidsi, backed by Bessemer Venture Partners, Accel Partners, and New Enterprise Associates, among others, has a loyal following among young parents for Diapers.com’s baby supplies, and has been expanding into other drugstore-aisle categories with its Soap.com and BeautyBar.com sites.
Amazon had launched two recent salvos against Diapers.com: a free-shipping and discount program, Amazon Mom, and more recently an all-out price war in diapers, which some speculated was a tactic to force Quidsi to the negotiating table. The price is 67 percent more than Quidsi’s most recent financing round in October 2009, which valued the company at $300 million.
Quidsi’s founders, Marc Lore and Vinnie Bharara, will reportedly remain with the company after the buy with long-term contracts. That move, as well as the fierce discounting in the runup to the buy, is reminiscent of Amazon’s prolonged courtship of Zappos and its charismatic CEO, Tony Hsieh, who still runs the online shoe retailer for Amazon.
There’s just one hitch I see: Will Amazon have to start collecting sales tax in Quidsi’s home state of New Jersey? Already, Quidsi collects sales taxes in several northeastern states where Amazon doesn’t. Internet and mail-order retailers can’t be forced by states to collect taxes on most interstate purchases; consumers are supposed to pay the tax themselves, but few do. The absence of sales tax often gives online retailers a price advantage over brick-and-mortar stores. If Amazon integrates Quidsi’s infrastructure to gain from its operating efficiencies, it may find it hard to avoid collecting taxes in states like New Jersey, where Quidsi is based.
Online retailers, including Amazon.com, have long called for a rationalization of sales taxes. Perhaps Amazon’s betting that it’s worth more to corner the online-diaper market than to skimp on taxes. It’s just one more sign that Quidsi has come up with something Amazon can’t resist paying for.