Why Amazon's Free Shipping Minimum Matters So Much

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Oct. 23 (Bloomberg) -- On today's DrillDown," Cory Johnson examines the reasons behind Amazon raising its free shipping minimum to $35. He speaks on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

This could affect their bottom line.

Imagine if they had a bottom line?

Today may be the most important day in the amazon's decade, because of this change.

Is it really that big of a change?

One of the things we know -- you only need to spend $10 more on your merchandise to get free shipping.

For all of the quantitative work that they do, all the studies, wonderful books, one of the things we know is that they had sort of just and some things as it relates to shipping.

The price of the amazon prime membership, for example.

If you look at the stock chart of amazon, it tells you that amazon investors fundamentally believe the business of the future will be different than today.

In the future, they will have profits.

They would charge more, they will find places to get profit.

With changes like this, this could fundamentally -- could make people spend more, give away less spending, could change the margin problems.

Operating margins of less than one percent.

If that increases, with the revenue base they have, this could be a massively profitable business because it sure is not now.

One of the interesting things in the book, 20 years ago, jeff bezos was running the company on thin margins but he said the same thing today.

This is for the long-term.

Two decades is a short time span in his mind.

He is running the company for multiple decades.

One of the ways the company is built is by paying employees with stock.

The stock only goes up if investors believe they can turn a profit.

But the stock has gone up anyway because investors have so much confidence in him despite the market.

But the believe with what happened today, they are charging more money, giving a little less back to consumers.

Shipping costs have gone through the roof over the course of the last five years.

They were already spending $400 million a year.

Now it is $2.9 billion in shipping.

For them to capture a little bit of that back is an interesting change in their business and i wonder if this is the beginning of a signal that they will start to turn on the profit sheen, which has been turned off or the last five years.

The stock is down two percent today.

We will see.

We will have more "bloomberg

This text has been automatically generated. It may not be 100% accurate.

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