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To: DAY TRADER who wrote (32801)	1/5/1999 10:41:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

From Marion on another forum: "I wanted to add a few more thoughts to my earlier discussion about e-commerce and distribution. There has been a popular notion that books and CD's would be the best item to sell over the internet. The thinking behind this is that the customer doesn't need to "see or touch" them. Upon closer examination, I think they in fact may be the worst items to sell over the internet. What has been ignored is the more important economics of manufacturing and distribution for these items. Both books and CD's are different from other items because they MUST be inventoried. They are made all at the same time, not as they are needed. For Instance, a book run may consist of 100,000 copies. The printer will print off 100,000 copies all at the same time. Due to the set up costs, the most economical way to print, is to run as many as you think you would sell over a reasonable course of time, all at once. The unit cost of an item goes down dramatically with the volume at the time of production. They will then be boxed (at the printer) and shipped out in quantity to distribution centers, jobbers, and stores. It's also worth noting that the publisher also doesn't handle the manufacturing process. The reason that Dell works so well is that each computer is built to order and they make them one at a time. This makes sense. That is why Dell benefits so well by its approach to sell direct to the consumer. It is also why this business model can work well on the internet. Books and CD's on the other hand are not built to order. There is a disadvantage to ordering them one at a time, since it is cheaper to have bought them in quantity. You get the largest price break when you order quantity at the time of the printing. Therefore considering that they MUST make a certain quantity of a given title, and they MUST be kept someplace, why not have them on the shelves of a store? Instead of thinking of a Barnes and Noble store as simply a "retail outlet," why not think of it as a "self service distribution center." With the books in the store, the customer makes the selections and carries them out. With the store simply collecting the money. On the other hand, with an internet store you must either have a distribution center ship out the item, at a higher cost, or they can inventory and handle the distribution themselves. This means they have to pay people to pick and pack the books or CD's. It is more labor intensive than the retail store. The assumption that they had an advantage over businesses that maintained physical stores was based on a preconceived notion that they could avoid the cost of inventory. That somehow they could be modeled like "Dell." The focus has always been on HOW it is being sold, and not on WHAT is being sold. The focus has been that they are selling on the internet, not on they are selling books and CD's. Today Amazon put out a press release saying that their sales for the quarter were 250 million dollars. They also said, that due to the increased costs they would still not be profitable. Even under the very best of circumstances all Amazon can hope to become is "Barnes and Noble", profitable book retailer. They can't become a Dell. While on the subjects of e-commerce misconceptions, I think the greatest misconception, is that consumers think that their purchases are not subject to sales tax. In most states they are in fact subject to the sales tax. The consumer is supposed to file a return with their own state and pay the tax themselves. In my State, Illinois, you are required to file a return once a year for all items purchased out of state, where sales tax was not charged. Businesses must file once a month. Amazon and the other internet retailers don't tell that to the customers when they ship them the books or other items. Would people really think shopping on the internet was so convenient if they knew that? It also, leads to the misconception that the item is cheaper. I have seen that posted many times on the boards. The argument that the cost of paying for shipping was offset because they didn't have to pay for the sales tax. The Federal Governments moratorium on taxing the internet applied to additional taxes, not sales tax. Most of the large mail order companies that were in existence before internet shopping do collect sales tax, such as Columbia House, and Book of the Month Club. I noticed that Dell collected the sales tax when I bought my computer from them too."