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The holiday season treated very well

Both online and B&M retail sales plunged over the holiday season.  Layoffs abounded and there was no definite sign of an end in sight.  However, amid all these financial woes, a few lone stars did brighten the picture for the retail market.

One of the brightest stars was online retailer Amazon, who continued to post strong growth.  It made good on its claims of a seemingly implausible "best ever" holiday season when it posted its quarterly earnings this Thursday. 

Amazon posted a $225M USD profit, a growth of over 9 percent from the same quarter a year before.  Revenue climbed a whopping 18 percent to $6.70B USD.  The revenue handsomely surpassed analyst predictions which called for a more paltry $6.44B USD.  Amazon's electronics division was one of the greatest successes, growing to $2.89B USD, up 31 percent from the previous year.

Jeff Bezos, founder and chief executive of Amazon, states, "We remain relentlessly focused on serving customers with low prices, great selection and free shipping offers, including Amazon Prime."

Mr. Bezos cited the strong demand for Amazon's eBook reader Kindle as one reason why Amazon profits rose when overall the online community sunk.  On February 9, 2009 Amazon will introduce a new version of the best-selling gadget at a New York news conference.

Innovative products aren't the most important factor in Amazon's success believe some analysts.  They say it benefits from customers with reduced budgets looking for bargains, with Amazon's prices often being lower than retail stores.  Describes Mark Mahaney, an analyst at Citigroup, "Amazon may be enjoying a Wal-Mart effect, with people trading down to Amazon to get better prices over the holiday.  Amazon must have dramatically taken market share (from other retailers)."

The lone trouble sign for Amazon was its operating margin, a measure of real earnings left after expenses such as employee wages, discount costs, and other operating costs.  Amazon saw this margin sink from 4.79 percent the year before to 4.09 percent.  This was partly due to heavy discounting.  While it’s good that this raised sales, it’s a bit of a concern for Amazon when it looks at its bottom line. 

Amazon also had the misfortune of losing a key suit which allowed the state of New York to charge tax on its sales and possibly destroying the previous legal precedent of nexus protections.  As more states adopt such provisions, Amazon may see its revenue after taxes take an even bigger hit.

Many challenges await this year for Amazon, however, it certainly seems better prepared to handle them than most retailers given its strong performance over the holiday season.

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Taxes, my 2 cents, Kindle 2
By Bateluer on 1/30/2009 9:51:48 AM , Rating: 2
As much as I hate to see it, Internet sales tax will soon be the norm every where. As people increasingly buy their goods online, the government will need/want to tax online sales to maintain their revenue stream.

Still, I've ordered almost as much from Amazon as I've ordered from Newegg and only had minor issues.

I'm seriously considering buying a Kindle 2 when Amazon launches it, provided it meets my requirements and is reasonably priced.

RE: Taxes, my 2 cents, Kindle 2
By theapparition on 1/30/2009 10:29:01 AM , Rating: 5
Internet tax is already the norm. Meaning, you owe tax on every purchase you make online unless you live in a sales-tax free state.

It's just that you are supposed to pay the use tax directly to your state, usually through a state income tax return. The merchant is not obligated to collect it unless they have a physical presence (and hence tax ID) in that state.

Just because you didn't pay tax at time of purchase doesn't mean it's not due. However, I agree with you, that very soon, automatic collection of taxes will soon happen. It's inevitable.

RE: Taxes, my 2 cents, Kindle 2
By TomZ on 1/30/2009 10:49:12 AM , Rating: 3
I'll best if you did a survey, most people don't know they are supposed to pay sales tax for online purchases. And of the people that know, I'll best that most simply don't pay it. That only leaves a tiny fraction IMO that actually pay sales tax on online purchases.

RE: Taxes, my 2 cents, Kindle 2
By theapparition on 1/30/2009 12:27:04 PM , Rating: 2
You are absolutely correct Tom. Most don't know this. That is why I'm so vocal on the matter. Call it a pet-pieve of mine.

I hear over and over about not paying taxes for online or catalog purchases. Even the media jumps on the tax-free bandwagon. Local radio stations advertise coming across state lines to a neighbooring state with "tax free shoping".

RE: Taxes, my 2 cents, Kindle 2
By Blight AC on 1/30/2009 1:41:16 PM , Rating: 2
I had been paying the ~$20 get-out-of-jail-free at the end of each year, since all my purchases were under $1000 each. Course, now it doesn't matter because the online retailers I use charge for taxes anyhow.

However, I think the biggest people at fault for the online tax-free ignorance are the professional tax preparers for not making their customers aware.

RE: Taxes, my 2 cents, Kindle 2
By Oregonian2 on 1/31/2009 2:33:48 AM , Rating: 2
If the interstate purchase was made from a seller in a state w/o sales taxes, does the buyer still have to pay the sales tax for it in their home-state? Even if they were visiting (say on vacation) in person and bought stuff from the hotel gift store? I suspect so, but see below as to why I ask.

Reason I ask is that there used to be a major national seller of photographic stuff (no longer there I think, they got bought out by a chain store and "dissolved" into them). Huge many-paged ads in the back of Pop Photography every month (not as big as B&H's now, but big). Anyway, they advertised "No sales tax! We're in Oregon, a state with no sales tax". Now, to me it didn't matter, I'd buy from them in their retail store with no taxes, but I'm curious if there was any actual legal benefit to others or was it just creative marketting. :-)

RE: Taxes, my 2 cents, Kindle 2
By consumerwhore on 1/30/2009 1:27:14 PM , Rating: 2
And just in case some people are reading this and wonder: "I didn't know" is not a defense against the IRS. Never has, never will be.

RE: Taxes, my 2 cents, Kindle 2
By KC7SWH on 1/30/2009 6:42:08 PM , Rating: 5
Since when does the IRS collect STATE sales tax???

RE: Taxes, my 2 cents, Kindle 2
By bhieb on 1/30/2009 11:22:43 AM , Rating: 2
Don't know why you got rated down, as this is true. In most sales tax states you still owe the tax. It is never the vendor that owes the tax just the buyer, the vendor is just obligated to collect it for the state if they have a physical facility there.

I don't see why people get so bent out of shape about this, why is it that online vendors should have this automatic advantage over local B&M's. As a consumer I want to pay less sure, but it is foolish to think not paying tax on your amazon bill will accomplish that.

Assuming that the State needs X dollars to fund it's budget, they are gonna get that X from taxes. Either they raise property or other taxes or they get it from sales tax. Just because you didn't by they 60" at the local store, does not mean you "saved" anything as they will find another way to tax you to get the X dollars they need.

The only thing the current situation does is hurt local b&m's period end of story.

RE: Taxes, my 2 cents, Kindle 2
By bobcpg on 1/30/2009 12:19:41 PM , Rating: 2
why is it that online vendors should have this automatic advantage over local B&M's.

Why should I have to pay for shipping for a product by a company that is not allowed to B&M in my state.

Perhaps this will change some bad laws.

RE: Taxes, my 2 cents, Kindle 2
By bhieb on 1/30/2009 12:23:58 PM , Rating: 2
My point is you pay either way. Assuming the state only makes money via taxes, and they have an X dollar budget to fill. They will fill it via taxes, sales or otherwise. So to assume you are "saving" anything is a misnomer.

RE: Taxes, my 2 cents, Kindle 2
By Jimbo1234 on 1/30/2009 1:59:25 PM , Rating: 2
Assuming the state only makes money via taxes

That IS the only way states "make money." They do not sell anything.

By theapparition on 1/30/2009 12:29:47 PM , Rating: 2
Can you give me an example of a company that is "not allowed" to B&M in your state?

It's one thing when a company doesn't have a physical presence. It's quite another when your state tells them it's illegal to do so.

I'd love to hear an occurance of this for a relevant business.

RE: Taxes, my 2 cents, Kindle 2
By Blight AC on 1/30/2009 1:29:51 PM , Rating: 2
Well, it may hurt the local Brick and Mortar stores, but the fact is, even paying taxes and sometimes shipping, I'm still usually getting a far better price then the MSRP most stuff is sold for at a B&M.

I bought my 56" on Amazon for approx. $1600, and it came out to just over $1800 with taxes and free shipping. I couldn't find it locally for anywhere under $2100, and that was before taxes were added.

RE: Taxes, my 2 cents, Kindle 2
By bhieb on 1/30/2009 1:49:39 PM , Rating: 2
Agreed, I'm not saying that online is still not better. Rather why should they be given a 7-10% head start?

RE: Taxes, my 2 cents, Kindle 2
By Oregonian2 on 1/31/2009 2:37:13 AM , Rating: 2
Well, local B&M stores have a head start too, the obvious advantages (if the net prices were anywhere close to the same, which would one buy from -- B&M's would win 98+ percent of the time, IMO).

RE: Taxes, my 2 cents, Kindle 2
By Jimbo1234 on 1/30/2009 2:03:44 PM , Rating: 2
$1600, and it came out to just over $1800 with taxes and free shipping.

So you paid over 12.5% tax? Which state charges that outrageous rate? None of them.

You're getting screwed somewhere.

RE: Taxes, my 2 cents, Kindle 2
By Blight AC on 2/2/2009 8:51:14 AM , Rating: 2
I don't remember the exact totals, but it was probably high 1600's (like $1689) and low 1800s. Actually... I find it kinda funny that you did the math on that... I was making it as simplistic as possible just to make a point.

"It seems as though my state-funded math degree has failed me. Let the lashings commence." -- DailyTech Editor-in-Chief Kristopher Kubicki
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