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.

Buy.com
Buying a new lease on life

F.Scott Fitzgerald said there are no second acts in American life. F. Scott Fitzgerald never met Scott Blum. Near death 18 months ago, Blum’s Buy.com is a contender again. An aggressive free shipping policy, a promise to undercut Amazon’s prices, big ads in the Wall Street Journal, Blum interviewed by Joan Rivers at the Emmys—suddenly Buy is showing every sign of life.

All this activity has resulted in big spikes in sales. Book sales were up 500% and total sales 25% the month after the free shipping offer was announced—and there has been little slippage from those levels, the company says.

And now Buy is taking on a multi-channel approach, with a cable TV show that interviews persons associated with a product—the explanation for why Blum got VIP treatment at the Emmys and on-screen time with Joan Rivers. “Our vision is to demonstrate a powerful model for the future,” Blum says.

The TV idea appeals to analysts. “Buy.com can’t reach out and grab people,” says Ken Cassar, senior analyst for Jupiter Research Inc. “TV can get people’s attention and get them to the web site. It should generate a lot of traffic for Buy.com.” But Cassar also notes that TV is costly and risky. “It’s too early to tell whether the benefits will outweigh the risks,” he says.

Blum certainly thinks they will. “If all goes right, only about 25% of our sales will come from the Internet within three years,” he says.

TV will not make up the remaining 75%; rather, orders will come to a call center, driven there by a “magazine” launched earlier this year. It’s really more of a catalog that features products in an editorial context which browsers can read about, then order by phone.

Blum can be forgiven some smugness as he watches over the resurrection of Buy.com. He took the company public in early 2000, selling 16.1 million shares at $27 each while continuing to hold 40% of the company’s stock. He stayed on the board but was not a huge fan of management’s moves into new products and creation of a corporate structure he felt was bloated. Late last year, he bought the company back at 17 cents a share. He quickly trimmed staff and product, then watched as sinking sales turned around. From a high of $207.6 million in the first quarter of 2000, sales had fallen steadily to $94.9 million in Q2 2001. Sales appeared to have settled at $1 million a day earlier this year, before jumping to $1.4 million a day over the summer.

If that trend keeps up, Blum will have a winner on his hands once again. “I never lost faith in the business model,” he says.

eBay
Never satisfied

Like a young lion that suddenly realizes it has bounds of untapped power, eBay Inc.’s eBay.com is prowling for more turf in the retail jungle. And at the rate it’s going , it could easily become king of the jungle by virtue of changing the way consumers buy products. “EBay is the most revolutionary development to come out of the Internet, as far as really changing the business model and making retailing a one-to-one experience,” says Neil Stern, a partner with retail consultants McMillan/Doolittle.

EBay is already hitting some impressive numbers in terms of sales transactions in several product categories: $3 billion in used cars; $2.2 billion in computers and electronics; $1.4 billion in home furnishings; and $750 million in each of sports and fashion. “Now we’ll try to go broader and continue to enter new categories,” says Jeff Jordan, senior vice president and general manager of eBay U.S.

Some of its fastest-growing new product categories are home improvement, health-and-beauty, and supplies to vertical small-business markets. Keeping these and other product areas organized in categories is a key to growth, Jordan adds, because it helps build critical mass and makes it easier for shoppers to find what they want.

At the same time, eBay expects to expand in areas where it is already strong. Take the used-car market, which amounts to close to $400 billion a year in the U.S. “Our $3 billion is not even a percentage of that,” Jordan says. “We may be the largest in used car sales, but we have huge opportunities to grow.”

EBay is also gaining momentum in areas it wasn’t initially designed to serve. Significant to both its future sales and image among consumers, Jordan says, is the rapid growth in selling activity by major retailers and manufacturers like The Home Depot Inc., Hewlett-Packard Co. and IBM Corp., which are using eBay to sell overstock items instead of placing them with liquidators. “That adds credibility to our site, because the buyer sees these big brands,” Jordan says.

In another unexpected development, sellers and buyers are going beyond eBay’s traditional auction sales and opting instead for its Buy It Now service for immediate purchases. For the third quarter, 24% of its $3.77 billion in gross merchandise sales transactions were through Buy It Now. “That’s almost as much as Amazon,” Jordan says.

Judging by the amount of traffic flowing through eBay, growth is likely to continue. It has 55 million registered users worldwide, and in October its average number of unique monthly visitors reached 5.8 million. With a presence in 27 countries, it handles transactions for $40 million in sales every day.

Lowe’s
Winning strategy nails web to stores

DIYers use Lowes.com to build out their homes, logging on for materials and information on projects ranging from finishing floors to installing a sink. Lowe’s Cos. Inc. is using Lowes.com to build something as well: a bigger brand. As Lowe’s continues its transformation from a chain of hardware stores to a national network of home improvement superstores, the web plays a key role.

Though Lowe’s doesn’t break out its annual $22 billion sales by channel, online sales and traffic have risen rapidly since the site added commerce in 2000. Analyzing customer information showed that online visitors who logged on for information also wanted to see the cordless drill or power saw they’d need to complete their projects.

Lowes.com has three roles: it’s an extension of the brand, it helps customers track down what they need online or in their local store, and, says Meg Armstrong, director of business development and marketing for Lowes.com, it offers “education, guidance and inspiration.” And how. With 25,000 SKUs—more than half of Lowe’s in-store offering of 40,000—and more than 100 online buying guides and how-to’s including an increasing number in Spanish, Lowes.com provides serious help for those in the throes of a home improvement project and ideas for those just getting started. Online product demonstrations let visitors learn about a specific brand while more project-oriented instructions might show how to create a right angle when building a deck.

Lowes.com’s cool tools—manufacturer-specific interactive sites within the site—number half a dozen and are growing. ClosetMaid’s design-a-closet tool, for example, queries customers about size and storage needs, then recommends a customized closet layout. Armstrong Floors’ design-a-room tool lets shoppers select a room image and decorative style, then try out flooring options.

Retail Forward vice president Goeff Wissman notes that besides attracting customers, Lowe’s uses the sites within a site as selling tools to strengthen ties with vendor partners. “The information they provide online is easy to get at and easy for homeowners to understand,” he says. “Some of the interactive how-to’s are pretty impressive.”

Lowe’s back-end system automatically links site visitors interested in products to local store inventory and pricing. “The idea is to tie the site with the store experience and not lose any continuity for our shoppers,” says Armstrong. “We want to give people a place where they can shop at their leisure, research at their own pace, and shop when they want to get the Lowe’s experience all day, every day.”

Office Depot
How many ways can one use the web?

With $2 billion in sales from 20 U.S. and international web sites, it seems Office Depot Inc. has the web market all sewn up. But Office Depot doesn’t think so. It’s constantly finding new ways to use the web. A deal to sell office products at Amazon.com under the Office Depot brand and a series of online webcasts for small business owners are only the latest manifestations of a drive to get as much out of the web as possible. “We’re taking the web to the next plane as far as customer communication is concerned,” says Monica Luechtefeld, senior vice president of e-commerce at Delray Beach, Fla.-based Office Depot.

Its webcasts for small business owners are part of an effort to build an information resource center at OfficeDepot.com. It will include, for instance, standard forms that office managers can download as well as articles about how to run a business—all at no cost. But Office Depot is betting such users will become buyers. “Offering this information attracts certain groups whose profile is a lot like our best buyers,” Luechtefeld says.

In December, Office Depot also is launching a deal to help VARs—value-added resellers who are key distributors of technology products—reach Office Depot customers. The arrangement will help customers get in touch with VARs in their areas who can help them configure a server or work through software licensing. “Products are getting easier to connect, but not all our customers are comfortable being do-it-yourselfers,” Luechtefeld says. “This is an opportunity for us to be a resource for the VARs.”

As if all that isn’t enough, Office Depot launched a Spanish-language site at the beginning of December.

If the webcasts are an indication, Office Depot is on the right track in extending its reach not only by using the web but also by offering basic information to online customers. Its first presentation in mid October attracted 1,000-plus viewers. Even being cautious not to over-technologize the offering, though, Office Depot still fielded many more cries for help than it was expecting. “I was surprised at how many e-mails we got saying ‘I can’t hear the sound,’ ” Luechtefeld says. Office Depot tech staff ended up coaching a lot of viewers offline—and implementing an 800-number for future webcasts.

But the effort will be worth it, she says, because there is a knowledge void among small businesses. “Each time we do something like this, it’s almost unbelievable the hundreds of e-mails we get with great comments and incredibly good questions.,” Luechtefeld says. “We’re trying to stay ahead of where our customers are going.”

QVC
All that and more

TV retailer QVC has moved its winning broadcast sales formula online to expand its reach, its product offering—and its sales. QVC.com contributed about $285 million, up 46% from the previous year’s $194 million, to 2001’s total sales at QVC Inc. “On air, we sell a lot of merchandise on impulse; online we sell a lot of merchandise as a considered purchase. They’re different business models, but they work together so well,” says Bob Myers, vice president of merchandising at QVC.com.

Cross channel integration is a QVC strength, says Jupiter Research analyst Julie Deeks. “There are only so many products you can show on TV in a given hour, but time and inventory are unlimited online,” she says. “The site really extends the TV network. The feature that exemplifies that is the program product listing. It’s very easy for the web visitor to access information that’s been promoted on TV and gain greater product depth.”

QVC-TV features about 1,600 products during any week, but QVC.com has nearly 1 million online 24/7. “Our home page is probably the most dynamic one out there. We change it 20 or more times a day to keep up with merchandise that is selling out on TV, because we pull from the same inventory,” Myers says.

To further engage web shoppers, QVC this year began streaming TV broadcasts live online. On one recent broadcast day that featured fashion merchandise, for example, 40,000 people launched the broadcast on their computers. QVC.com has also this year successfully transferred the concept of timed promotional events from its TV channel to its web site with features such as “lunchtime specials,” products available only online and only between 11 a.m. and 3 p.m.. That’s driven both sales and new traffic.

The web also supports QVC.com’s e-mail marketing strategy, which it’s fine-tuned this year for impressive results. QVC.com cut outbound mails by several million, but did greater segmentation based on customer history among those it sent. Myers says that change has produced an 89% incremental increase in sales on click-through from e-mail, compared with sales for products that were not the subject of promotional e-mails.

While QVC.com does some online advertising on portals such as AOL, its biggest advertising vehicle by far is QVC-TV. The URL is on screen during all broadcasts, which now reach 84 million homes. QVC’s TV hosts also mention the web site frequently. “All the synergy we gain with the broadcast we try to translate online,” says Myers. “Customers have trusted us for 16 years on air, and they know they can do it online, too.”

ReturnBuy
A soup-to-nuts solution

Shoppers return an estimated $60 billion of merchandise bought in all channels every year and retailers and manufacturers spend some $40 billion managing those returns. It’s easy to spot the problem if you do the math. ReturnBuy Inc. is by no means the only company to come up with a web-based secondary market solution for handing retail returns, but it takes the problem off retailers’ hands with a comprehensive approach that handles products at any stage of life.

ReturnBuy sells under three brands on eBay: BrandNewBuy for new in-box goods, ReturnBuy for like-new returned items, and Real Crazy Mo for the rest. The brands use a five-star rating system to describe condition. ReturnBuy presents merchandise differently on its own, newly-re-launched site. Condition is covered by a quality chart that categorizes condition at one of four levels. Descriptions on each product page provide further detail.

Between its own and its eBay sites, ReturnBuy is set up as one solution for returns and overstocks that a retailer might have to handle through multiple outlets. “We can manage the entire product life cycle for our clients and the range of quality from 100% working condition to items that aren’t functional,” says senior vice president of marketing Steve Kirchner. “It might take a retailer or manufacturer 6 to 18 months to manage through that process because they’re not set up for reverse logistics. We can do it in weeks and we can get a higher price for them.” Those higher prices come in part from systems and technologies that get products back into the sales cycle sooner. And by selling mainly to individual consumers rather than distributors or other retailers, ReturnBuy.com helps clients avoid channel conflict, he adds.

The ReturnBuy site, which focuses on consumer electronics, offers discounts of up to 60% off full retail price on name brand merchandise. The site looks like a well-designed conventional online store with easy navigation, a shopping cart, a 30-day return policy, the option to purchase product warranties—and no auctions. Consumers can shop several ways including by category and brand.

“There is a big market for businesses reselling products,” says GartnerG2 research director Geri Spieler. “Their site looks great. The product descriptions help people understand what the features are, and you can buy warranties, unusual for returned merchandise.”

“The returns are usually current models and we test and certify everything we sell,” Kirchner says. “Because retailers can’t sell the items as new, consumers get a great price—just by taking advantage of someone else’s return.”

Target
Targeting a branded experience

Target Corp. has been making strides in the past few years to refocus its corporate strategy. It dumped the decades-old Dayton Hudson name to leverage the brand of its largest and best-known retail chain, Target Stores, and increased efforts to promote all of its retail brands: Target, Mervyn’s and the more upscale Marshall Field’s. And with a boost from Amazon.com, its corporate branding strategy is working particularly well online.

Over the past year, Target has been moving all of its brands to a common web site powered by Amazon. Operating under the name Target.Direct, the combined site is unique to the online retail world in that it allows cross shopping in all three Target brands and on Amazon.com. All purchases, regardless of how many of these brands are included, are made using the same shopping bag.

The close association of the several brands also supports Target’s long-held strategy of positioning Target Stores as a cut above other discount mass merchants, such as Kmart Corp. and Wal-Mart Stores Inc. By allowing shoppers to place a pair of $19.99 carpenter jeans from Target.com in the same shopping cart as a $59.50 pair of Greg Norman Oxford Microfiber pants from Fields.com, Target Corp. is helping to build on the branded image it has been striving to create for Target Stores.

“Branding is one of the things they do a good job of, and it represents where they want to be in the market,” says Chris Merritt, a principal of retail consultants Kurt Salmon Associates. “Now they have a broader offering of brands and Amazon does a good job of providing a wide offering and making it easy to relate one brand to other categories.”

As a shopper browses throughout the Target.Direct site, regardless of the brand she’s shopping in, the colored logos of all three Target Corp. brands and Amazon’s appear prominently at the top of every page, next to the ever-present shopping bag. At the bottom of every page are links for personalized services such as checking order status and viewing recent shopping history.

Target also offers the option to create a personalized “My Store” page, which takes on the shopper’s name (so it becomes “Tom’s Store”) and features products from any brand on the site that the shopper has visited. It also provides links to a Gift Reminder and a Wish List for registering gift ideas. Another section of the My Store page, called The Page You Made, provides more details on the most recent items browsed. “We believe this alliance with Amazon will further strengthen our brand and deepen our relationships with our guests,” says Jerry Storch, vice chairman of Target Corp.