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Monday, 21 September 2009
Amazon fast becoming world’s general store
In an increasingly digital age, Amazon is quickly becoming the world’s general store. Alongside the books and CDs and DVDs are diapers, Legos and power drills, and more arcane items like the Jackalope Buck taxidermy mount (US$69.97).
The hum of 102 rooftop air conditioners and a chorus of beeping electric carts provide the acoustic backdrop in Amazon.com’s 605,000 square foot distribution facility on this city’s west side. But the centre’s employees can almost always hear Terry Jones.
On a recent summer afternoon, Jones, an “inbound support associate” making US$12 an hour, steered a hand-pushed cart through the packed aisles and shouted his location to everyone within earshot: “Cart coming through. Yup! Watch yourself, please!”
His cries might double as a warning to the retail world: Amazon, the Web’s largest retailer, wants you to step aside.
Fifteen years after Jeffrey Bezos founded the company as an online bookstore, Amazon is set to cross a significant threshold. Sometime later this year, if current trends continue, worldwide sales of media products - the books, movies and music that Amazon started with - will be surpassed for the first time by sales of other merchandise on the site. (That transition already occurred this year in its North American business.)
In an increasingly digital age, Amazon is quickly becoming the world’s general store. Alongside the books and CDs and DVDs are diapers, Legos and power drills, and more arcane items like the Jackalope Buck taxidermy mount (US$69.97).
“Amazon has gone from ‘that bookstore’ in people’s mind to a general online retailer, and that is a great place to be,” said Scot Wingo, the chief executive of ChannelAdvisor, an eBay-backed company that helps shops such as Wal-Mart Stores and J.C. Penney sell online.
Wingo sees e-commerce growing to 15 per cent of overall retail in the next 10 years from about 7 per cent. “If Amazon grows its market share throughout that period, and honestly I don’t see anything stopping it, that is pretty scary,” he said.
Indeed, Amazon has been grabbing e-commerce market share since 2006, taking away customers from eBay in particular. But its advances are shaking up the entire retail world. Giants such as Wal-Mart are warily replicating elements of its strategy, while small independent retailers in sporting goods and jewellery now worry their fate will be similar to that of small bookstores and independent video rental shops.
Amazon’s expansion strategy has allowed it to thrive during the recession, even while its own media business has stagnated. Over the last year, shoppers have bought fewer books, CDs and DVDs, in many cases opting for cheaper digital downloads. In the quarter to June, for example, Amazon’s worldwide media sales grew only 1 per cent to US$2.4 billion, highlighted by a decline in video games.
In the same quarter, sales of other products, which the company lumps together on its balance sheet in a grouping dubbed “electronics and general merchandise”, grew 35 per cent, to US$2.07 billion.
Its relentless ambition to sell more of everything is constantly on display. In July, Amazon introduced separate hubs on its site for outdoor sporting goods and mobile phones and wireless plans. Then it capped the month by buying the online shoe and apparel retailer Zappos.com in a stock swap now worth more than US$930 million.
Aside from using its stock and US$3.1 billion in cash and marketable securities to make acquisitions, Amazon has fuelled its growth as a general retailer by nudging loyal customers to buy a greater variety of products, offering free shipping and speedy delivery with clubs such as the US$79 a year Amazon Prime.
It has also lured an increasing number of small sellers to list their own products on Amazon.com, and takes roughly a 15 per cent cut of each sale. Such third-party transactions account for 30 per cent of all the sales on the site. And Amazon continues to expand its network of more than 25 global distribution centres.
Amazon already offers hundreds of private label kitchen products and outdoor furniture, and uses these direct relationships with manufacturers to further undercut prices from the competition.
Amazon executives are nonchalant about the shift to general retailing, regarding it as preordained since the firm announced its ambition to offer the biggest selection of goods on earth before going public in 1997. But they have reason to feel vindicated: after the dotcom bust, some analysts thought the firm could go broke trying to stock a wide array of merchandise.
“It means we are becoming increasingly important in the lives of our customers, which has been our mission from the beginning,” said Jeff Wilke, Amazon’s senior vice-president of North American retail. “We had the chance to earn the trust of the customer beyond media, and we took it.”
Amazon’s profit and margins have always been slender; it earned only US$645 million last year, up 36 per cent from 2007, compared with Wal-Mart’s US$13.4 billion, up 5 per cent. But Wall Street is more enamoured of the promise of the online retailer, valuing Amazon at about 60 times earnings and Wal-Mart at 15 times earnings.
“They don’t have to incur huge inventory carrying costs and can add product categories almost ad infinitum,” said Jeffrey Lindsay, an analyst at Sanford C. Bernstein. “Amazon has an almost magical business model in terms of inventory management.”
Amazon’s incursion into general retail has rivals scurrying to regroup and stop its advance. Last month, Target, which let Amazon to run its website for the last 10 years, said it would end the affiliation when its contract was up in 2011, following other one-time Amazon partners such as Borders and Toys “R” Us.
This month, Wal-Mart said it would allow other retailers to sell their products on Walmart.com, mimicking Amazon’s third-party marketplace and trying to match its vast selection.
But the Amazon effect may be most deeply felt by small independent stores, which cannot hope to compete with Amazon’s selection and prices.
Ken Lombardi, the chief executive of his family’s 60-year-old Lombardi Sports in San Francisco, views Amazon as a source of some of his business troubles. He says it is Amazon that has helped depress margins and snagged sales for basics like silicone swim caps, undershirts and running shoes - which Amazon can offer without California’s 8.25 per cent sales tax.
“People used to come in to buy a pair of running shoes and we would sell them a shirt or a workout outfit. We’re losing that,” said Lombardi, who was recently forced to lay off 18 per cent of his 75 employees.
In response to the gathering storm, Lombardi has overhauled his store, shrinking space for lagging items like Crocs clogs - which are offered cheaply on Amazon. He also commissioned a new website to replace the static old one, which had not changed much over the years.
“All we can do is tell a story physically and let people touch and smell and feel the product, which they can’t do online,” Lombardi said, lamenting his store’s future. “I think we are doing everything we can.”
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Amazon fast becoming world’s general store
The New York Times in Phoenix
21 September 2009
The hum of 102 rooftop air conditioners and a chorus of beeping electric carts provide the acoustic backdrop in Amazon.com’s 605,000 square foot distribution facility on this city’s west side. But the centre’s employees can almost always hear Terry Jones.
On a recent summer afternoon, Jones, an “inbound support associate” making US$12 an hour, steered a hand-pushed cart through the packed aisles and shouted his location to everyone within earshot: “Cart coming through. Yup! Watch yourself, please!”
His cries might double as a warning to the retail world: Amazon, the Web’s largest retailer, wants you to step aside.
Fifteen years after Jeffrey Bezos founded the company as an online bookstore, Amazon is set to cross a significant threshold. Sometime later this year, if current trends continue, worldwide sales of media products - the books, movies and music that Amazon started with - will be surpassed for the first time by sales of other merchandise on the site. (That transition already occurred this year in its North American business.)
In an increasingly digital age, Amazon is quickly becoming the world’s general store. Alongside the books and CDs and DVDs are diapers, Legos and power drills, and more arcane items like the Jackalope Buck taxidermy mount (US$69.97).
“Amazon has gone from ‘that bookstore’ in people’s mind to a general online retailer, and that is a great place to be,” said Scot Wingo, the chief executive of ChannelAdvisor, an eBay-backed company that helps shops such as Wal-Mart Stores and J.C. Penney sell online.
Wingo sees e-commerce growing to 15 per cent of overall retail in the next 10 years from about 7 per cent. “If Amazon grows its market share throughout that period, and honestly I don’t see anything stopping it, that is pretty scary,” he said.
Indeed, Amazon has been grabbing e-commerce market share since 2006, taking away customers from eBay in particular. But its advances are shaking up the entire retail world. Giants such as Wal-Mart are warily replicating elements of its strategy, while small independent retailers in sporting goods and jewellery now worry their fate will be similar to that of small bookstores and independent video rental shops.
Amazon’s expansion strategy has allowed it to thrive during the recession, even while its own media business has stagnated. Over the last year, shoppers have bought fewer books, CDs and DVDs, in many cases opting for cheaper digital downloads. In the quarter to June, for example, Amazon’s worldwide media sales grew only 1 per cent to US$2.4 billion, highlighted by a decline in video games.
In the same quarter, sales of other products, which the company lumps together on its balance sheet in a grouping dubbed “electronics and general merchandise”, grew 35 per cent, to US$2.07 billion.
Its relentless ambition to sell more of everything is constantly on display. In July, Amazon introduced separate hubs on its site for outdoor sporting goods and mobile phones and wireless plans. Then it capped the month by buying the online shoe and apparel retailer Zappos.com in a stock swap now worth more than US$930 million.
Aside from using its stock and US$3.1 billion in cash and marketable securities to make acquisitions, Amazon has fuelled its growth as a general retailer by nudging loyal customers to buy a greater variety of products, offering free shipping and speedy delivery with clubs such as the US$79 a year Amazon Prime.
It has also lured an increasing number of small sellers to list their own products on Amazon.com, and takes roughly a 15 per cent cut of each sale. Such third-party transactions account for 30 per cent of all the sales on the site. And Amazon continues to expand its network of more than 25 global distribution centres.
Amazon already offers hundreds of private label kitchen products and outdoor furniture, and uses these direct relationships with manufacturers to further undercut prices from the competition.
Amazon executives are nonchalant about the shift to general retailing, regarding it as preordained since the firm announced its ambition to offer the biggest selection of goods on earth before going public in 1997. But they have reason to feel vindicated: after the dotcom bust, some analysts thought the firm could go broke trying to stock a wide array of merchandise.
“It means we are becoming increasingly important in the lives of our customers, which has been our mission from the beginning,” said Jeff Wilke, Amazon’s senior vice-president of North American retail. “We had the chance to earn the trust of the customer beyond media, and we took it.”
Amazon’s profit and margins have always been slender; it earned only US$645 million last year, up 36 per cent from 2007, compared with Wal-Mart’s US$13.4 billion, up 5 per cent. But Wall Street is more enamoured of the promise of the online retailer, valuing Amazon at about 60 times earnings and Wal-Mart at 15 times earnings.
“They don’t have to incur huge inventory carrying costs and can add product categories almost ad infinitum,” said Jeffrey Lindsay, an analyst at Sanford C. Bernstein. “Amazon has an almost magical business model in terms of inventory management.”
Amazon’s incursion into general retail has rivals scurrying to regroup and stop its advance. Last month, Target, which let Amazon to run its website for the last 10 years, said it would end the affiliation when its contract was up in 2011, following other one-time Amazon partners such as Borders and Toys “R” Us.
This month, Wal-Mart said it would allow other retailers to sell their products on Walmart.com, mimicking Amazon’s third-party marketplace and trying to match its vast selection.
But the Amazon effect may be most deeply felt by small independent stores, which cannot hope to compete with Amazon’s selection and prices.
Ken Lombardi, the chief executive of his family’s 60-year-old Lombardi Sports in San Francisco, views Amazon as a source of some of his business troubles. He says it is Amazon that has helped depress margins and snagged sales for basics like silicone swim caps, undershirts and running shoes - which Amazon can offer without California’s 8.25 per cent sales tax.
“People used to come in to buy a pair of running shoes and we would sell them a shirt or a workout outfit. We’re losing that,” said Lombardi, who was recently forced to lay off 18 per cent of his 75 employees.
In response to the gathering storm, Lombardi has overhauled his store, shrinking space for lagging items like Crocs clogs - which are offered cheaply on Amazon. He also commissioned a new website to replace the static old one, which had not changed much over the years.
“All we can do is tell a story physically and let people touch and smell and feel the product, which they can’t do online,” Lombardi said, lamenting his store’s future. “I think we are doing everything we can.”
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