E-Commerce ROI: Many Happy Returns

In January, when Amazon.com reported its first profitable quarter ever—keeping its promise to Wall Street that at the end of 2001, the online retailer would finally go into the black after seven years—the business press covered the story as if it were the second coming of the Web.

But 150 miles to the south of Seattle, where Amazon was celebrating its “turning point,” in the words of CEO Jeff Bezos, executives of another Internet book retailer had a very different reaction.

“What’s the big deal? We’ve always made money since we’ve been online—and that’s eight years ago,” says Miriam Sontz, CEO of strategic development at Portland, Ore.-based Powell’s Books, whose eight branches make it one of the Northwest’s largest book chains.

Without the luxury of a nickel in venture capital backing or public financing, privately held Powell’s Books simply couldn’t afford to lose money for an extended period of time. “We had to start off with a different mentality than Amazon and play business the old-fashioned way,” says Sontz.

Since its founding, Amazon.com has received upwards of $2.1 billion in funding to take itself to profitability. Meanwhile, Powell’s initial investment to design its Web site was kept to well under $1 million, because virtually all of the software and creative development was handled in-house, and the company earmarked new money for online operations only when Internet cash flow could cover it.

Moreover, Powells.com didn’t build its own warehouse for more than three years after the Internet site first opened its doors. Until then, the bookstores served as the site’s distribution centers. But when the warehouse was completed in April 1998, the cost of Powells.com inventory management dropped precipitously, because fewer employees were needed to manage the stock. That widened Internet profitability, and generated additional cash to increase the number of books in inventory and upgrade customer checkout procedures, among other things.

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