E-Commerce
Amazon Sticks To Its Guns
"I think we own the URL relentless.com," quipped Amazon.com's David Risher as he opened up the question and answer session yesterday during the company's analyst day.
And so everyone in the room proceeded with the time-honored Wall Street tradition of having the sell-side and buy-side folks get together and pose questions to company executives who do their best to avoid giving any straight answers about sales growth targets and so forth.
The day's biggest news was Amazon's
(nasdaq: AMZN - news - people) plans to launch a new personal computer store in the second half of this year. Before anybody could question the wisdom of getting into a low-margin business with declining growth, Risher, who is senior vice president of marketing and merchandising, defended the move. "There is a lot of gross profit locked up in each of those boxes," he said. Risher explained that PC vendors--who are as yet unnamed--have agreed to warehouse and ship computers directly to customers, so Amazon won't have to worry about having obsolete inventory on its hands.
Analysts may not have come away with many of the data points they'd hoped for, like the gross profit figures for Amazon's consumer electronics division, or with the still eagerly-awaited news of another e-commerce platform partnership like its deal with Toys R Us
(nyse: TOY - news - people) of Montvale, N.J.
But most admitted they were impressed by the level of detail presented at the meeting. Still, the strategies outlined were pretty much standard operating procedure for the retail industry. "Amazon was a marketing company," says Wit SoundView analyst Shawn Milne. "Now that they're focusing on how to retail, there's a lot of low-hanging fruit for them to grab. This is retailing 101."
Executives talked about how they now calculate the profitability associated with each item they sell, and mapped out how they've eliminated costly mistakes at its fulfillment centers. Jeff Wilke illustrated how by having less inventory on hand Amazon can save $12 on the cost of storing and shipping a $300 digital camera.
"There are details [today] about how they'll get to break even," says Deutsche Banc Alex. Brown analyst Jeetil Patel. "For the first time they gave us concrete information we can take back to our desk and do our analysis. They are finally talking specifics about where they can shrink their cost structure and how that relates back to their financials."
Management stuck to its guns by reiterating its goal to reach pro forma operating profitability by the fourth quarter, and made no apology for the fact that this excludes some steep expenses, like the interest payments on its $2 billion in debt.
"Pro forma operating profitability is just the first step for us," admitted Chief Executive Jeff Bezos, who added that he expected to maintain that status throughout 2002. The comment hinted at financial results to come--or at least their time frame. After all, if Amazon is profitable on a pro forma basis throughout next year, there's no telling how long it will be until it sees net profits.
More From Forbes
What Is Amazon Thinking?
