Late last month the NYTimes Magazine took a deep look at the penny book business and answered the burning question: how these companies make money (the article just crossed my desk this weekend).
The piece in the NYTimes doesn't tell us much more than what we learned from the similar article in The Guardian earlier this year, but the NYTimes does get into nitty-gritty details that reveal that the term "penny books" is a misnomer. Most books sell for more than a penny, and even when they don't Amazon is still turning a nice profit on each sale made in its marketplace:
Used books sold on Amazon typically carry a $3.99 shipping fee. But that isn’t a reflection of the actual cost of shipping them — it’s a function of the company’s rules, which mandate a consistent shipping cost for every category of the product in the Marketplace. Amazon takes a standard cut of every book sold — $1.35 — which leaves each of the penny sellers of “A Visit From the Goon Squad” with a whopping $2.65 to cover the cost of the item, shipping and handling, labor, rent on warehouses and all the other costs that come up along the way.
The sellers wouldn’t tell me exactly how much profit they make on penny books. Shipping costs vary depending on the kinds of deals you can cut with delivery services. “We make more than it costs us on the postage to ship it, but not much,” Ward says. “A couple of cents, to be honest.” But the sellers aren’t selling only penny books — Ward says that less than half of his stock sells for that price.
In short, penny books are a great deal for customers and for Amazon, but not so much for the retailer or anyone else.
Remember, these books are often sourced from charity shops' discard bins. About 90% of said bin ultimately ends up either in a recycling bin or the landfill, but the few books that are in adequate condition to sell again are enough to support an industry which (collectively) approach Amazon in scale, scope, and efficiency:
Operations like Thriftbooks step in and buy these landfill-bound books, sight unseen, for around 10 cents a pound. Thriftbooks has 10 warehouses across the country, each with its own name. Ward says each of them is “about the size of your typical Walmart,” somewhere between 70,000 and 90,000 square feet. ...
Discover Books, another major used bookseller on Amazon, is also based in the Seattle area. Unlike Thriftbooks, Discover Books relies on automated scanners to enter books into its system, which can handle more than 60 books per minute. “If there’s any history of that book online, our system will pick it up,” says Tyler Hincy, Discover Books’ vice president of marketing.
Do you know Jeff Bezos' saying abut your margin being his opportunity?
In the case of these retailers, the margins are so tight that I doubt there's any opportunity left.