Amazon is known for a vast selection at low prices, but razor thin profit margins may mean it's time for Amazon prices to rise.
We love Amazon for its huge selection, great (and usually free) shipping options, and best of all, low prices. However, the days of super low prices may be coming to an end. Amazon has always operated with low profit margins, which analysts have speculated would cause prices to rise at some point in order for the company to make ends meet. The company's 2012 revenue was over $61 billion — not a small figure — but at the same time, Amazon's net earnings were actually a loss of $39 million. And as anyone balancing a checkbook knows, with numbers like that something has to give.
Less Competition in the Book Market Means Higher Prices for Consumers
The time for price increases may be now. The New York Times reports that Amazon is starting to cut back on discounts on books, in effect raising prices on many titles. The evidence so far is only anecdotal, as the Times points out a number of specific price increases, but Amazon says that overall prices are actually lower. Scholarly publishing houses and small publishers seem to be hit hardest with these price increases, perhaps because Amazon sees less need to keep prices competitive on less popular titles.
And in the end, competition is what this is all about. When Amazon was founded in 1995, the marketplace was full of booksellers. Companies like Waldenbooks, Borders, Barnes & Noble, and many independent retailers were selling books in shopping centers and strip malls; Amazon had to offer low prices to convince potential customers to take a chance on an unproven online retailer. This was a model that worked well and one that Amazon has stuck to. But today, the situation is reversed: Barnes & Noble remains in rough water financially, and Waldenbooks, Borders, and a number of other retailers have gone out of business entirely.
But just how bad does it look for Barnes & Noble? In the last quarter, the company posted a net loss of over $118 million and the company's chief executive resigned in July, neither of which are signs of a promising future. And so without retail bookseller competition, there's a lot less pressure for Amazon to keep its book prices low.
If Amazon really is raising its prices because the competition is sinking, that's bad news for consumers — especially if Barnes & Noble goes under, leaving consumers with even fewer options for purchasing new and used hard copy books. For those more interested in eBooks, price wars are still very much at play; with Apple vying for part of the digital book economy, Amazon's eBook prices remain relatively low. But even competition from Apple may not be able to keep Amazon's attractive prices around, as the computer giant was recently found guilty of fixing eBook prices. Apple plans to appeal the ruling though, suggesting the company isn't backing down on eBooks just yet.
In the meanwhile, we'll hang on to hope that competition stays high so that prices stay low. Otherwise, the days of Amazon offering bargain-basement rates on books across the board may be coming to an end.
Elizabeth harper is a contributor to dealnews.com, where this article first appeared.