I like shopping in book stores. There’s something about wandering the aisles and waiting for a book to jump out at you that I can’t get shopping online. Unfortunately, whenever I compare the price of a book Amazon has every in-person store beat, often pricing their offerings 30%-50% lower (or around $10/book in my experience) even when I go to a large chain like Barnes and Noble.
How is it that Amazon is able to afford to offer the books so much cheaper and also support all of the infrastructure involved in shipping it to my doorstep compared with in-person stores?
I don’t know the full details, but part of it:
- In the store you can walk between the books. This takes loads of room. In the Amazon warehouse, this can be veeery cramped.
- The land value of the store is probably mich higher than the Amazon warehouse land.
- They sell much more, so all costs can be shared across a million orders, instead of across just 10 books sold.
don’t forget taxes evasions
Two things. Commercial real estate required for physical book stores is expensive. Amazon has warehouse space, but so does the bookstore company. Volume discounts. Amazon probably sells double the volume of their next biggest competitors. This allows them to purchase the books for cheaper than their competitors. This also goes for shipping. They make the same kind of arrangement with USPS that allows them to purchase shipping at a discount since they buy so much of it.
There are other reasons, but those are the biggest.
when I sold to Amazon, they refused to do a deal at anybody else’s cost structure. They demand an extra discount, but they also buy two of everything you have and everything you sell. It’s a big trade off. Even getting the shipment organized because it’s not correct exactly, you can be fined. So I’m sure they make a little bit off of that, plus it is direct company strategy to undercut, so they eliminate competition. They have had no problem losing money while establishing their business structure. Also, their used books are procured by local people for pennies on the dollar and typically make the seller less than a dollar in profit . They are operating on very thin margins, and making their money elsewhere with the expectation of diminished competition.
Yhey also keep some of their overhead low. The retailer that wants to sell tonAmazon has to build their own sku’s into the system. It’s very tedious work, and takes a very long time, and you have to fill out all of their fields, even though most of them are very repetitive. It’s a large undertaking and not having to do it saves them a lot of money.
They also charge book sellers warehouse fees, so they don’t have to keep the books around their house waiting to sell. Again, all of these little things add up to pennies on the dollar but when you multiply it out by Amazon numbers it adds up.
They already have the infrastructure in place, having an extra line item doesn’t really affect Amazon as much as you think it might.
sometimes a company will do some thing called loss-leaders. Perhaps a new book comes out, and they want to sell it to $15 less than everybody else. They are willing to lose that money to get your business so that you do future business with them. They would like to sign up new accounts which is harder than getting existing accounts to double their spending. either way, engagement and purchases are up when you offer steep discounts.
At a guess:
- Volume discount: Amazon will buy a hell of a lot more books than a single mom and pop store
- Retail rule of thirds: (very loosely) a third of the price you it goes to manufacturing, a third to distribution/logistics, and a third to the retailer. Amazon vertically integrates the second two.
- Online only: website capacity costs a lot less than running a brick and mortar store
- Margin: amazon will make less per book but sells more books because people prefer to buy them cheaper. There’s a separate discussion here about anti competitive practices (eg undercutting competition to put them out of business, then raising prices later) but that is a whole other debate
Amazon does not make any profit from their books. They are able to sell them cheaply because they sell them at a loss. They weren’t even profitable for a long time and maintained thanks to investors. Basically, Bezos sold the idea of the future of his store’s worth. And it worked.
That hasn’t been true for more than a decade. (Why be in a business you can’t make money on?) Amazon have, for a long time, invested more or less all their profits into new business lines on the promise that they could easily “flip a switch” and start making billions in profits. (They started doing that a few years ago after bad financial results.)
Not in Germany.
I want this to be true… is it?
All the solid answers posted plus they’re now a massive store - they can live on, say, $0.10 profit on a book because they made plenty more on the backpack and tire patch kit and deodorant you also added to your cart because convenience.
Plus no retail rent, no retail staff to pay.
It’s like gas stations barely breaking even on gas, but making bank on snacks. Bookstores usually won’t have those other product categories to fall back on like Amazon does.
