Among the most aggressive online marketers are the mass merchants. Amazon is constantly re-defining what it means to sell on the web. It has become a combination of merchant, shopping mall and technology vendor-and competitors closely watch every move it makes. Its partnerships with Target, Toys R Us, and now well known apparel retailers like Nordstrom, Lands’ End and the Gap keep it at the forefront of online shopping trends. Its development of technology such as its patented one-click checkout help to take the consumer experience to new levels.
Similarly, eBay is redefining retailing-and not just e-retailing. Its goal is to become a major retail site and to achieve that it’s advertising on network television, it’s taking high-profile exhibits at product trade shows and it’s working out its own deals with high-profile brands such as IBM to sell merchandise at eBay.
And then, when it comes to talking about aggressive, there’s Buy.com. The retailer that was nearly dead 18 months ago suddenly is advertising in the Wall Street Journal, showing up on the Emmys program being interviewed by Joan Rivers, offering free shipping on all purchases and starting up a glossy “magazine” that pitches products in an editorial context. And now it plans to use TV as another distribution channel. In three years, Buy expects only 25% of its sales to come from the Internet. Founder and now sole owner Scott Blum isn’t modest about his aspirations. “Our vision is to demonstrate a powerful model for the future,” Blum says.
He’s not alone in seeing how TV and the Internet work together. QVC already knows the relationship. QVC-TV features 1,600 products; QVC.com features 1 million. “On air, we sell a lot of merchandise on impulse; online we sell a lot of merchandise as a considered purchase,” says Bob Myers, vice president of merchandising at QVC.com. “They’re different business models, but they work together so well.”
But even mass merchants without TV aspirations or plans to transform retailing are finding success on the web. OfficeDepot.com, for instance, will do $2 billion in sales this year, nearly 20% of all sales. It operates 20 web sites around the world. And now it’s finding new uses for the web, such as the small-business information webcasts it hosts or the VAR section it recently launched. “We’re trying to stay ahead of where our customers are going,” says Monica Luechtefeld, senior vice president of e-commerce.
In the mass market, that’s a tall order.
Pushing the envelope for profits
Amazon.com Inc. continues to set new measures of performance on the web. First it was breaking barriers in selling books online, then expanding to a shopping mall of products, then providing a selling platform to other retailers. And now, finally, turning operating profits.
After starting out as the brash new merchant ready to turn the retailing world on its head-and appearing to care little about profits-it’s now the granddaddy of e-retailers to which others are turning for know-how. And it not only cares about profits, it produced more than $1 million of them on an operating basis in each of this year’s first two quarters, although special charges of $37 million resulted in a Q3 operating loss of $10 million, still an improvement over the year-earlier loss of $70 million.
Amazon’s operating profits are minuscule compared to its $2 billion in outstanding debt, which leads to substantial quarterly net losses. But all signs point to revenues and operating profits continuing to grow. Amazon-the only retailer other than Lands’ End to make Internet Retailer’s Best of the Web four consecutive years-has a unique knack for building on its online expertise, creating new revenue streams along the way. “Amazon’s strength is in its fundamental retailing capabilities, and it does a great job of leveraging those capabilities,” says Ken Cassar, retail analyst with Jupiter Research.
While constantly working to improve its e-commerce platform and back-end fulfillment operations, it has created a way to both increase revenue and cut costs. By using its trusty platform to host online stores for partners such as Target Corp. and Toys ‘R Us Inc., for which it also provides customer service and fulfillment, Amazon has forged economies of scale. “Amazon gains the revenue and profit for work it does for other retailers, but it also gains cost leverage for its own sales,” Cassar says. “By improving inbound and outbound freight costs, it’s better able to offer free shipping and maintain a strong price position.”
And it continues to expand its retailing reach, launching this fall an online apparel store with Gap, Nordstrom, Lands’ End and other major brands, while tripling the number of publications to which it sells subscriptions to 90,000.
In another recent move, Amazon extended to all of its product categories-and those of its retail partners-a search system from Inktomi Corp. that updates product details every two days. In addition to giving shoppers more accurate information, it enables Amazon to quickly see the results of product promotions. “They’re always pushing the envelope, but now Amazon is in an operational mode rather than just technology development,” Cassar says.
$3.12 billion, 2001 net sales