Amazon.com expands to toys, electronics
July 14, 1999
BY MARTIN WOLK
REUTERS
SEATTLE -- Amazon.com Inc. expanded further from its roots as an online bookseller Tuesday, opening toy and consumer electronics departments in a costly gambit to keep its spot as the Internet's biggest retailer.
With the two virtual stores offering everything from an $8 Jungle Surfin' Tarzan action figure to a $1,200 big-screen television, books are relegated to just one category on Amazon's "welcome" page, which also touts music, videos, electronic greeting cards and auctions.
Amazon.com stock rose $8.75 to $126.125 in active Nasdaq trading on Tuesday, while the Internet sector was mixed.
Company executives declined to discuss their investment, but analysts said the aggressive expansion is a big part of the reason the company signaled in April that losses this year would be far greater than previously expected.
"The company gave every indication they were going to be expanding dramatically this year, and that is exactly what they are doing with these two categories," said Derek Brown, an analyst at Volpe Brown Whelan.
He estimated that the Seattle-based online retailer will lose $281 million, or $1.74 a share, this year on sales of $1.4 billion. Brown sees losses continuing at least through 2001.
But he and other analysts said Amazon.com had a good shot at taking a leading role in both categories.
The expansion into toys had been anticipated, and brings Amazon.com into competition with industry giant Toys R Us Inc., which has stumbled in its Internet efforts, and o Amazon.com into competition with industry giant Toys R Us Inc., which has stumbled in its Internet efforts, and o nline leader eToys Inc. , which has seen its stock slide to about $40 from a peak of $85 in the hours after it went public in late May.
In consumer electronics, Amazon faces online competition from a wide array of virtual and brick-and-mortar retailers including 800.com Inc., Value America Inc. and Best Buy Co. Inc. but the market is fragmented with no clear leader and huge growth potential, analysts said.
"Of the markets they're in, it's got the most potential in terms of top-line dollars, and it's also the fastest-growing category," said David Cooperstein of Forrester Research.
U.S. consumers shell out about $61 billion a year for audio-video equipment, wireless phones and other gear, compared with about $20 billion for books and $23 billion for toys, according to industry trade groups.
"We think it's a market that's largely underserved today on the Internet," said Christopher Payne, general manager of consumer electronics for Amazon.
While Amazon has taken the lead in offering deep discounts on books and music, Payne said the company recognizes others will undercut its prices on some toys and electronics. But it claims it will offer a superior customer experience through online buying guides, fast shipping and a knowledgeable staff.
"We understand customer service is a challenge in these businesses and are staffing up accordingly," he said. "We want to make that one of our strengths."
Payne would not rule out expanding further into personal computer sales, although for now the company is limiting its offerings to peripheral devices like printers.
He said the company, which has sold a limited variety of toys and electronics in its gift department since the last holiday season, has hired more than 100 people to run the two new sites. It will rely on an expanded network of seven warehouse and distribution facilities across the country that put goods within easy reach of most U.S. markets.
The warehouses have been a major component of Amazon.com's capital spending program, funded in part by a $1.25 billion bond sale this year. The company has more than doubled its work force to 4,500 people from 2,100 at the end of 1998.
Analysts who are bullish on Amazon.com's prospects said the company needs to invest heavily to gain long-term value from its growing database of more than 10 million customers.
"The question I have to ask myself is, if there are 10 million people today, could it be 20, 30, 40 million people in two to three years?" said Lauren Levitan of BancBoston Robertson Stephens. "The answer is yes. The reason this company gets a big market cap is that there is such a big opportunity."
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