You can buy an iPod nano on Apple, Best Buy, etc. for about $149. Amazon sells it for $134. That’s probably cost price. It turns out that Amazon can sell almost everything at cost price and still make a product because of volume. It’s all down to the Negative Operating Cycle. Amazon turns over its inventory every 20 days whereas Best Buy takes 74 days. Standard retail term payments take 45 days. So Best Buy is in debt between day 45 and day 74. Amazon, on the other hand, are sitting on cash between day 20 and day 45. In that time, they can invest that money. That’s where their profit comes from.
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Revealing Design Treasures from The Amazon (via iamdanw)
This is the truth. Most people miss how brilliant and critical this is to Amazon’s success, especially in the earlier days.
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Wow… 20 days to turn inventory. That’s remarkable for retail. They must run on a pretty lean inventory… I guess that’s...
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