Monday, December 14, 2009

Can Amazon Be Wal-Mart of the Web?
NYT, 9/18/09

Amazon’s success is nothing less that astounding considering its brief history and the dot-com bubble it survived. Their focus is not just on sales but on critical processes to drive efficiency, accuracy and cost.


"Fifteen years after Jeffrey P. 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 other words, 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…..
“Amazon has gone from ‘that bookstore’ in people’s mind to a general online retailer………
……. “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 incursion into general retail has rivals scurrying to regroup and stop its advance.
In August, Target, which allowed Amazon to run its Web site for the last decade, announced it would end the affiliation when its contract was up in 2011, following other one-time Amazon partners like Borders and Toys “R” Us. This month, Wal-Mart said it would allow other retailers to sell their products on, mimicking Amazon’s third-party marketplace and trying to match its vast selection. Analysts believe Sears, which owns Kmart, is preparing to allow outside sellers on its sites as well.
But the Amazon effect may be most deeply felt by small independent stores, which cannot hope to compete with Amazon’s selection and prices and recall in fear how the company hastened the fate of both independent booksellers and prominent electronics chains like Circuit City"


"It has also lured an increasing number of small sellers to list their own products on, and takes around a 15 percent cut of each sale. Such third-party transactions now account for 30 percent of all the sales on the site. And Amazon continues to expand its network of more than 25 distribution centers around the world, where it constantly hones the art of getting products to customers as quickly as possible.
Next week, Amazon will take yet another step in this strategy, expanding its private label business with a line of Amazon-branded audio-video cables and blank media discs. Amazon already offers hundreds of private label kitchen products and outdoor furniture, and uses these direct relationship with manufacturers to further undercut prices from the competition."


"Inside Amazon’s vast shipping centers, the company’s growing capability as a general retailer is nearly invisible. What is clear is that the normal rules of retail don’t apply here.
Instead of storing similar items next to each other — televisions with other electronics, shampoo with other personal care items — randomness abounds…………Amazon says it stores dissimilar products next to each other on purpose, to minimize the possibility that employees select the wrong item. That seems unlikely: every product, shelving unit, forklift, roller cart and employee badge in these shipping centers has a bar code. Each physical move is orchestrated by software that calculates the most efficient path from shelf to the shipping area, telling employees on their wireless bar code readers which aisle and palette to go to next."


"Amazon also benefits greatly from its advanced inventory management methods and ability to negotiate beneficial payment terms with vendors. The company sells such a large volume of merchandise, and can predict customer demand so accurately, that it generally sells products within 65 days, before it has to pay suppliers for them.
That arrangement, which analysts call “negative working capital,” is unusual outside of grocery stores and allows Amazon to avoid the huge capital charges associated with buying and storing such a broad line of inventory. It also boosts the company’s cash flow, which it has used to pay down its debt to $109
million at the end of June from a hefty $2 billion in 2000, and to add more product lines to its Web site. "

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