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Depends on how you define "most", "retail", and "business". Sure, Retail is generally a low margin business, but there are many caveats to that. Selling toilet
by xkjkls 9y ago
Depends on how you define "most", "retail", and "business".
Sure, Retail is generally a low margin business, but there are many caveats to that. Selling toilet paper isn't exactly going to give you double digit margins, but selling fashion might, or digital media.
Amazon's retail business is also structured differently than almost all of their comparables. With 90 million Prime members each paying $100 a year, that's $9 billion in free cash flow.
And I think it's probably foolish to think that AWS is going to end up being a low margin business. It definitely currently isn't, and it has a lot of the standard makings of a software business that can sustain high margins like Oracle or Microsoft. The Amazon offerings aren't just a set of simple web services, it's a extremely complicated suite of offerings that can be used as parts to write software tools in alot of different businesses. And given the amount of capital required to write a suite similar to that and the costs of a company would have to actually switch business applications off of something like AWS, I don't see why this wouldn't be a highly lucrative business.
- nabla9 9y ago>Prime members each paying $100 a year, that's $9 billion in free cash flow. Massive cash flow and very low margin is the name of the business in retail and logistics. Amazon will not be the one reaping profits from selling fashion.
- xkjkls 9y agoThere's a lot of reasons one could expect Amazon bucks many of these trends. Prime subscriptions, Amazon Marketplace, and Fulfillment by Amazon are all them leveraging their infrastructure for selling additional bottom-line contributions. Amazon also participates in a huge number of specialty retail businesses that have higher margins as well, like automotive products, beauty products, digital music, games, and video. I don't think there's any wall street Analyst who would predict Amazon's businesses in maturity wouldn't beat the 3-4% margins you might see at Walmart or Target.
- nabla9 9y agoAmazon can only grow if it encompasses almost all market segments. Picking retail margins by sub-sector is not helping there will be reversion to mean. Overall retail margins are very low. 0.5 to 3.5 percent for web-only depending on the sector.
- civilitty 9y agoI thought retail, where businesses have to expend tons of capital on inventory (or get large lines of credit), is the definition of a low cash flow business. If the majority of your cash flow is entirely spoken for by debt servicing costs (aka, avoiding certain death by default), then it's not really a large free cash flow.
- innagadadavida 9y agoAmazons fakes problem - Fashion brands distrust Amazon a lot as they’ve been burnt badly by amazon selling fakes. Amazon excels at selling cheap stuff that need to be ordered repeatedly or hard to find parts and knickknacks.