Hacker News Reader

Comment by adwf | Hacker News Reader

The funny thing for me is that everyone has always said that Amazon's share price is justified because eventually "they'll turn on the profit tap" and up their margins once the market is captive.

Yet, how do you tell when Amazon are about to do that? I would've thought they'd do it when revenue growth starts slowing. ie. When the strategy of spending money to make money starts being less effective, as there is steadily harder gains to be got from it. That's when I'd turn on the tap.

So just as Amazon are about to do this (potentially anyway), that's when people sell? I'd say this is by far the best time to buy...

View on HN

> Yet, how do you tell when Amazon are about to do that?

Amazon will never do that, because it can't. It's in retail. Retail is and always will be a low margin business.

Is there an example of a large retailer that doesn't manufacture its own goods that has profits in the double digits?

Normally true, but if Amazon trade in high enough volume (which they do), turning up the price by pennies across the board will generate quite a large bump in profit. And whilst they are definitely in the low margin, price sensitive business, programs like Amazon Prime generate quite a bit of stickiness to their brand, regardless of price.

I know that I find it a pain to shop elsewhere now, not just because of price, but because I've grown so used to the reliable delivery times of Amazon/Prime. I know almost to the hour when my packages are going to arrive. That's a killer feature worth at least a moderate bump in price before I'd shop elsewhere.

“We believe in the long term, but the long term also has to come,” says Bezos, explaining that periodically Amazon wants to “check in” with its ability to make money. Thus, in 2007, Amazon more than doubled its profit, to $476 million, on a 38% increase in sales to almost $15 billion.

http://management.fortune.cnn.com/2012/11/16/jeff-bezos-amaz...

Retail is and always will be a low margin business.

what would you rather invest in (assume there are no costs other than inventory to keep it simple).

A store that has $100K of inventory that turns inventory once a year with a 20% profit margin

A store that has $100K of inventory that it turns 10 times a year with a 5% profit margin

> Retail is and always will be a low margin business.

tell that to apple.

Amazon has done well because they work from different premises than most businesses. In particular, they're in the middle of a multi-decade effort to squeeze waste of various sorts out of the process of buying things.

They're now the best mail-order retailer, and they've beaten out local merchants for some classes of goods. But there's a long way they can go in terms of beating local merchants for most of the rest of what people buy. My guess is that Bezos isn't slowing down until Walmart is hurting.

Amazon is far from free of competition in almost any part of their business. If they start to gouge their customers, they will simply lose them.

Reply on news.ycombinator.com