Ben Thompson's Stratechery site is a constant source of inspiration. Last week he was tackling the development of Amazon and speculating that it could sell lots of products at a loss by adopting a Costco model.
"Consider Costco: last year the wholesale retailer had net income of $2.3 billion on sales of $114 billion to its over 81 million members; the total sum of membership fees was $2.5 billion," he wrote.
"In other words, Costco’s 11% gross margin didn’t even quite cover the cost of running the business; the difference, along with all of the profit, came from a “tax” levied on Costco customers."
For retailers in the UK unhappy with paying a "tax" to news wholesalers to get their newspapers and magazines, this makes uncomfortable reading. The UK's regulators, now the competition commission, have gamed the system so two companies can make a profit out of "carriage service charges" for wholesaling newspapers and magazines in exclusive territories.
A difference is, as Thomson recognises, that "Amazon is collecting a “tax” on a massive industry and no one minds because Amazon’s scale ensures the best prices and the best experience." The millions of customers who sign up for Prime do so because they get a better deal.
News retailers in the UK have no choice. But there is a bigger worry on the horizon. Amazon's "carriage service charge" on 54 million Prime customers (and growing) gives them a huge clout when it comes to competing on everything an independent retailer can sell.
"Consider Costco: last year the wholesale retailer had net income of $2.3 billion on sales of $114 billion to its over 81 million members; the total sum of membership fees was $2.5 billion," he wrote.
"In other words, Costco’s 11% gross margin didn’t even quite cover the cost of running the business; the difference, along with all of the profit, came from a “tax” levied on Costco customers."
For retailers in the UK unhappy with paying a "tax" to news wholesalers to get their newspapers and magazines, this makes uncomfortable reading. The UK's regulators, now the competition commission, have gamed the system so two companies can make a profit out of "carriage service charges" for wholesaling newspapers and magazines in exclusive territories.
A difference is, as Thomson recognises, that "Amazon is collecting a “tax” on a massive industry and no one minds because Amazon’s scale ensures the best prices and the best experience." The millions of customers who sign up for Prime do so because they get a better deal.
News retailers in the UK have no choice. But there is a bigger worry on the horizon. Amazon's "carriage service charge" on 54 million Prime customers (and growing) gives them a huge clout when it comes to competing on everything an independent retailer can sell.
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