From the 10Q:
Percentage of net sales................. 22.3% 24.4%
Marketing and sales expenses consist primarily of advertising, public relations
and promotional expenditures, as well as payroll and related expenses for
personnel engaged in marketing, selling and fulfillment activities. All
fulfillment costs not included in cost of sales, including the cost of operating
and staffing distribution centers and customer service, are included in
marketing and sales. Marketing and sales expenses increased primarily due to
increases in the Company's advertising and promotional expenditures (including
expenses associated with Internet aggregator promotional relationships),
increased payroll and related costs associated with fulfilling customer demand
and increased credit card merchant fees resulting from higher sales. Such
expenses decreased as a percentage of net sales due to the significant increase
in net sales. The Company intends to continue to pursue its aggressive branding
and marketing campaign and expects its costs of fulfillment to increase based on
anticipated sales growth. Therefore, the Company expects marketing and sales
expenses to increase significantly in absolute dollars.
I have been reading the 10Q and found some accounting issues with which I would like to take issue. The bottom line of losses remain the same. The accounting does not change that. However, AMZN wants the public to believe they are losing money due to their marketing to create a brand name. The assumption is that marketing as a percentage of sales will decrease in time. This could be considered a fixed cost in the event they do not change the amount of advertising. Amazon put in a variable cost that I feel was not intended to be noticed. The cost of fulfillment activities is placed in marketing. These are the people and of course, their payroll to pack the books and ship them. The more books one sells, the higher the costs of fulfillment activities. Therefore, this is a variable expense placed in the guise of marketing. This expense does not belong here. It belongs in general operational payroll. Marketing expenses should be the cost of advertising including andy advertising firms, the personnel involved with marketing and negotiating contracts. Operational costs do not belong here. I believe Amazon wants it to appear that their cost of doing business, excluding marketing, is far less than their competiors. That is not the case so they placed the fulfillment activities costs into marketing. Any thoughts anyone?
Glenn |
