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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 232.37

-0.9%

Dec 3 3:59 PM EST

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To: H James Morris who wrote (127585)	7/2/2001 9:40:19 AM
From: Glenn D. Rudolph	Read Replies (4) of 164684

I know I continue to bring this up. However, it amazes me that Amazon's management and the investing public is so impressed with Amazon's "service and fulfillment." This even ignores the issue that this service is performed at a loss. Please read the actually comments about us here. Not just the rating but what pleased the customer: cgi2.ebay.com I admit to this having been time consuming when we needed to teach a variety of our employees how to use Auction Watch, UPS shipping software, etc. when their specialty was jewelry. All software and hardware in use is off the shelf products. This is also true for our on-line presence in addition to our auction presence. On-line gross margins are smaller. They are averaging 30% compared to in store at 39%. We charge shipping of $6.00 for each item shipped but we were able to negotiate a cost from UPS of $4.50 per package with insurance to $1,000 for second day. This was due to the volume we were providing them and the original fee was $8.00. We supply our own shipping boxes to obtain this fee but I suspect a much larger shipper such as Amazon would get a better rate than we and they should. Let's take the $6.00 revenue for shipping. Of that $6.00, $4.50 goes to UPS, $0.50 goes for a shipping box and we place all our merchandise in a velvet box bought in store or on-line at a cost to us of $1.15 a box. The labor to "pick, package and ship (meaning use the software to provide a label), is about 6 minutes per item. The average wage of the employee is $10.00/hour and that could be far lower if we were using employees just for shipping. This is for our regular staff which is on the payoll regardless. Benefits per emploees cost us $0.75 per hour. The space used is the same space as we lease in our Erie store. That is a store in a strip center so the lease has no over ride terms which many of you may know what that is. The mall store has over ride so we run revenue and shipping through Erie. Incremental cost is $0. If we count labor and supplies excluding the velvet box we would use for a walk in sale, fulfillment cost us $6.10 so we lose ten cents on fulfillment per package. There are no additional Capex. Average sale price on-line is $175.00 with shipping revenue of $6.00 making revenue of $181.00. Cost of Goods Sold is $122.50 plus fulfillment of $6.50 which is total of $$129.00. Revenue of $181.00 less COGS of $129.00 leaves incremental profit of $52.00. So could someone please explain to me how Amazon manages to lose more than $2 billion in a few years?

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