MD253/MK252 Electronic Commerce

March 29, 2005 Amazon.com

Issues Covered• Amazon’s strategy

– competitive advantage

• Inventory efficiencies– turns & float

• Excellence in customer service– Personalization & switching costs

• Partnerships & ‘service’ businesses– Syndication model, merchants.com, web services

• Challenges

Amazon’s Strategy

Offline vs. Online Retail Efficiencies

• Turnover– 3 times / year– avg. book in store 121

days– Book on shelf 68+ days

after paying suppliers

• Inventory– shelf & warehouse stock– 30% returns

• Turnover– 16 times / year– avg. book in house

22 days– avg. 28 days of

float / title

• Inventory– all warehouse stock– few returns

Capital Efficiency – Negative Operating Cycle (Float)

Day 0

ProductReceived

ProductShipped

CustomerPayment

SupplierPaid

22 25 53

28 Days

Inventory Turns for Full Product Line, 2004Amazon = 16

B&N = 3, Home Depot = 5, Best Buy = 5, Wal-Mart = 7

Amazon’s Warehouse Network

• 5 facilities, > 4 million sq. feet• Extremely diverse product mix• Mixed Automation & Manual

Sorting and Conveyance• Direct to consumer fulfillment

Photos: blog link provided by the San Jose Merc News

captures early demand & improves inventory forecasting

Leveraging the Amazon Platform

• Amazon.com as seller– AMZN inventory & product detail pages

• Syndicated stores / Merchants@– AMZN tech & inventory, co-branded website – Ex: Borders, HMV, Waterstones, Waldenbooks,

VirginMegastore

• Marketplace– 3rd party inventory, AMZN product detail pages

• Merchant.com (Amazon Enterprise Solutions)– AMZN technology powers partner websites– Ex: Target, NBA.com, Bombay Company, DVF Shops