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Amazon: Financial crisis. What financial crisis?

Despite reporting lower profits, Amazon continues to fly in the face of the purse strings that seem to be tightening for many companies, as its relentless pace of growth continues unabated. The announcement that it is to add yet another customer support base to its other outlets and based in Scotland, is testament to this.

At a time when the UK economy seems to be stagnating, the news is more than welcome that they are to employ 900 staff at the new support centre in Edinburgh and distribution centre in Dunfermline. The support centre is scheduled to open in August, some two months before it opens the mind-boggling one–million-sqr foot distribution centre in Dunfermline. The service outlet is going to provide customer support for kindles and MP3’s.

Amazon seems to be firing on all fronts, with the recent addition of its German kindle catalogue on Amazon. com de and its continuing to push the boundaries that Amazon seem hell-bent on giving it the lion’s share of the Global eBook market into the future.

Another example of its relentless push for growth is the announcement that it is to open its doors as a publisher. I suspect there are other considerations than growth in arriving at this decision, after some publishers catalogues were pulled in an argument of pricing in early 2010 and thereby firing a warning shot across Amazons bow. Its reliance of traditional publishers, I would imagine, tightened a few butts, until Amazon caved in. The only comforting part of that fiasco is that it gives Amazon a reason to continue to support indie authors.

However, I digress; what of profits? Well, I wouldn’t worry too much about that. This past year has been one of high investment for Amazon, with much of the investment written off against profits. The facts are that their sales continue to rise both in America and in the Global market. The investment in infrastructure, products and software will position them to come through the Global crisis even stronger as consumers begin to restore their spending power.

To give an indication of the figures, sales came in at a healthy $9.86 billion, up from $.7.13 billion the year before. This figure represented a 45% increase in North American sales and a rise of 31% on international sales.

What does this mean to us as authors? Well it rather makes the sales of my eBooks pale into insignificance. But nonetheless, the more Amazon grow locally and internationally, then hopefully, the more our sales will grow.

When Tim Waterstone was made redundant from WH Smith in the UK, he launched  Waterstone’s, by opening the first books store in Old Brompton Road, London, using his 6,000 pounds redundancy money.

The year? … 1982. It was a time of opportunity in the UK. England was just coming out of a recession with Margaret Thatcher at the helm. The Romantic music era was in full flow with Duran Duran topping the charts, whilst America was still clinging on to the old favourites. It would be another 16 years before would come along in 1998 to sow the seeds to spoil Waterstone’s party.

In the preceding years, 1993 to be exact, it was with some irony that WH Smith, bought Watersone’s for 47 million pounds. Tim must have been laughing all the way to the bank, to think that the 6,000 pounds W H Smith’s had paid him originally had proved to be so fruitful.

Amazon. com, meanwhile had previously soldiered on through the dot-com bubble bursting and lawsuits from the book chains in America, aware of the peril Amazon posed to the future of their revenue. It was surprising then that in 1998, the same year that Amazon opened for business in the UK, that an investment vehicle together with Tim Waterstone bought out Waterstone’s from WH Smith 300 million, to become part of HMV. It was now WH Smiths turn to be laughing all the way to the bank.

Tim Waterstone left HMV in 2001 and in 2006 failed in an attempt to buy back the company he founded. With hindsight, he may be pleased he failed.

With the rise of Amazon’s fortunes in the UK and supermarkets taking a large slice of the book market, together with the economic crisis, Waterstone’s has suffered declining sales. At his stage, I doubt Amazon kindle in the UK opening for business in 2010 has made significant inroads in to Waterstone’s sales and is at the moment more like a flea on a cows back. I say this because my own book reached a rank of 800 out of 450,000 books with sales of only 5 per day on average. So, unless those above me are selling in the millions, the figures now are likely to be insignificant in the overall scheme of things. None the less, it is early days and as we have seen from the growth of eBooks in America, this situation is likely to change.

So where does that leave Waterstone’s today? If today’s press is correct then HMV have unloaded all 296 stores together with 4,500 staff to Russian Billionaire, Alexander Mamut, for 53 million, taking a hit of 247 million. I doubt HMV will be laughing as they bank the cheque. Clearly Mr. Marmut can see some value in keeping the book chain alive that eludes me. But as a successful entrepeneur, I bow to his better judgement. Still I suppose the pundits could say, that at 53 million it is on the face of it a bargain at just under 2 x earnings, but when you add the 176 million of debt and if that is cleared down., it raises the stakes to a less that attractive 8 times earnings.

It has also been announced, that James Daunt, a former merchant banker and more importantly the founder of Daunt’s bookstores, has been brought in by the Russian cell phone magnet to run the business. It reminds me of Roman Abromavich when he brought Chelsea football club and hired the best in the world to manage the team. Let’s hope Mr. Marmut will be as philanthropic with his purse as Roman in squandering his money, in failing in his ambitions to win the European cup.

 As for James Daunt, he has quite a task on his hands. If he is to follow his own business model, then it will need deep pockets to tackle the back office IT that is the dinosaur of the much-loved central buying process and deep discounting model, in favour of his own preference for well-trained knowledgeable stall, a depth of product and an end to discounting. Waterstone had already started to give some degree of local purchasing power to managers, together with allowing independents shelf space. With some luck, this will continue.

As for the future … who knows, maybe you will be able to buy a cell phone with your books, or alternatively maybe some receiver will be appointed to run the company somewhere down the line and they will be able to sell the leases and net 6,000 pounds. Now that would be ironic.

Stop press. News just in.

John Malone’s, Liberty Media have bid $1.02 billion for Barnes and Noble amid the companies declining paper book sales. I am really beginning to think there is life in the paper book chains yet, that the money men can see and I can’t. There is clearly more chance of value in Barnes and Noble, as opposed to Waterstone’s, with their success in introducing Nook, which is driving the focus of the company forward. To say I am bewildered by this sudden frenzy of activity, is to say the least, an understatement.