Is there a bookstore or music store or video store business (physical or virtual) with less
than $1B ann sales that is profitable?
Sarmad,
The following link will take you to an independant bookstore that I have patronized for years. This store does about $1 million in revenues and is profitable.
bigyellow.com
If there is, that would dispute Amazon's claim that profits must be preceded by gigantic
scale.
I know music stores and video stores in Michigan that are profitable at much smaller
scale than Amazon, though I don't know whether the on-line merchants may put them out
of business.
This independant is having difficulty keeping their revenues up since Barnes and Noble opened a superstore about 3 miles away. It is a struggle now but the problem is not online competition.
I have yet to see a business suffering from competition from online sources. Typically, major competitive pressure is coming from the large chain stores such as Walmart, etc.
Best Buy in our area has a large music department. I don't know their financial
condition, but they don't seem on the verge of bankruptcy. And as far as I know, they do
not sell their wares at a loss, since they are expected to earn $200M profits in '99. If
their music sales were not profitable, I don't think they would devote 50% of the selling
space to them. Yet, one of the excuses of Amazon's increased losses is that music sales
carry lower margins.
Also, I don't think Wal-Mart sells their music at a loss, either
I am sure Best Buy would not allocate a lot of space to a department that is not profitable. I know for sure that Walmart is the largest music retailer in the US and they make a nice profit on it.
The economy of scale argument from Amazon is getting very old. It has been my opinion they do not have the knowhow to retail at a profit and they have been proving right along. If the equity markets had not been so generous, they would be bankrupt by now. I truly believe they have no intentions of becoming profitable and this is just a scheme to keep going while insiders sell stock shares for millions. Bezos has a lot of stock left and he needs time to sell it without causing a panic.
I keep hearing about a new pardigm but it is not the business model. It is the equity markets throwing money around since there is so much out there.
Not one of the bulls ever seem to understand my intitial premise and the continued fundamental truth that fulfillment costs exceed gross margins. As long as that remains the case, revenues can be in the trillions and there will be greater losses. Amazon was utilizing their fulfillment facilities to the max during most of Q4 and did not turn a profit. Adding more facilities will permit more revenue but increase fulfillment expenses and this will continue forever until the equity market decides they no longer want to throw money at Amazon.
Glenn |
