 |
| Jeff Bezos |
According to The Motley Fool: Here's what Bezos knows: High
margins are hard to maintain for any company. For a retailer, they are nearly
impossible. Competition drives them into the ground, and the low-cost provider
always wins. That's how capitalism works. Look at the most profitable retailers
in the world -- they all have razor-slim margins. Wal-Mart's net income margin
was 3.6% last year and Costco's was less than 2%. Compare this to the S&P 500
average of nearly 9%. Retail just isn't a high-margin business.
In any commodity-type business that is destined for low
margins, there is only one way to increase the total dollar amount of net
income: Grow revenue. Forget increasing margins beyond anything but a trivial
amount. It's not going to happen. Size should basically become the sole focus.
Here's how Bezos once put it:
"Percentage margins are not one of the things we are
seeking to optimize. It's the absolute dollar free cash flow per share that you
want to maximize. If you can do that by lowering margins, we would do that.
Free cash flow, that's something investors can spend."
No comments:
Post a Comment