In a letter to shareholders released in advance of Amazon.com Inc.’s first quarter earnings report, CEO Jeff Bezos outlined the company’s strategy for addressing the current difficult economic conditions. Bezos says Amazon will focus on the long term and stay at the forefront of technology and services, as it has with such initiatives as the Kindle electronic book reader, Fulfillment by Amazon and the addition of 28 new retail categories such as office supplies and digital music.
“In this turbulent economy, our fundamental approach remains the same," Bezos says in the letter. “If we can identify a customer need and if we can further develop conviction that that need is meaningful and durable, our approach permits us to work patiently for multiple years to deliver a solution.”
Bezos cites the development of Kindle as an example, noting that it required a move beyond Amazon’s existing capabilities to design and develop hardware. But four years after it began developing the product, Kindle sales “have exceeded our expectations,” Bezos says. Amazon has not disclosed how many Kindle readers it has sold.
Amazon’s retail pricing strategy also focuses on long-term value, with earning customer trust taking precedence over short-term profit, Bezos says. “We take it as an article of faith that pricing in this manner is the best way to grow our aggregate profit dollars over the long term. We may make less per item but by consistently earning trust we will sell many more items,” he says.
That strategy also drives continued investment in the company's Amazon Prime shipping program, launched in 2005, which for $79 a year provides free two-day express shipping and one-day delivery upgrades for $3.99. Bezos notes that over the past 12 months, customers worldwide saved more than $800 million by using the company’s free shipping offers.
To improve delivery to customers across Amazon’s platform, the company in 2007 launched Fulfillment by Amazon for third-party sellers on its site. The program allows merchants to use Amazon’s warehouses and support staff to store and ship the goods they sell on Amazon.com. In the fourth quarter of 2008, Bezos noted, the company shipped more than 3 million units for sellers using the service.
“Our primary financial goal remains maximizing long-term free cash flow and doing so with high rates of return on invested capital,” Bezos says. To achieve that goal, he says, Amazon plans to, invest heavily in its Amazon Web Services unit that provides computing services to other companies, as well as in tools for third-party sellers, digital media, China, and additional new product categories. “We can make these investments with the belief that they can be of meaningful scale and can clear our high bar for returns,” he says.
Amazon.com is No. 1 in the Internet Retailer Top 500 Guide. Larry Maye, liquidations manager at Amazon, is speaking at the Internet Retailer Conference & Exhibition, June 15-18 in Boston, in a session entitled Merchandise returns—managing in tough times.
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