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To: Bill Harmond who wrote (10791)	5/10/1998 10:30:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 27307

Glen, even though most retailers take merchandize on consignment (I didn't know it) it still cost B&N a higher wholesale price for merchandise than Amazon pays. William, Someone really has you fooled. The bestsellers are purchased on consignment so that the retailer does not get stuck with thousands of ones that do not sell. The majority of stock of the established booksellers is owned by the booksellers and bought from the publisher rather than Ingram's which is a wholesaler making 6%. This can be proved by looking at the 10% greater gross margins that both BKS and BGP have over AMZN. Notice during the last quarter, AMZN barely squeaked out 20% gross margin compared to 30% for BKS and BGP. AMZN has almost no inventory and that is also proved by the turn rated of their inventory with much lower gross sales. The reason is simple. You order a book from AMZN and they have Ingrams ship it to you at a 6% greater cost to AMZN. AMZN has almost no assets, no inventory and thus, no net worth. They have a net worth at the end of last quarter of about $18 million. With their present cash burn rate, they will have a negative book value by this summer. They are leveraged completely so are paying interest and paying more for the same books than BKS and BGP. Compare the earnings statements and balance sheets. What good does all that "choice" do for Barnes & Noble? If it doesn't sell it costs them a ton to light it, heat it, cool it, house it, etc, even if they didn't pay for it. The point is BKS and BGP out sell AMZN five to one give or take. I would have to look. They also can command a higher price in their stores than on the net and they do that. Look at the margins, cost of goods sold and other aspects of the income statements. There is no arguing with a direct-selling model, if the merchandise is appropriate, and a consumer habit can be formed. You will find most people prefer to peruse books, look at the table of contents and enjoy the atmosphere of a store. There is a market for the direct-selling method so BKS and BGP are there to meet that market as well. However, they can meet that market with better gross margins. It is my opinion that AMZN is toast before the turn of the century. Possibly a year or two later. Bertelman's, which owns sixteen publishers, will be in the online arena by the end of the summer. They also own The Literary Guild amongst other book clubs. I do appreciate you debating this so I may keep myself sharp. Glenn