Last week Amazon.com reported better than expected results for the first quarter ended March 31, 2002, and also announced an expansion of its alliance with Borders Group.
Sales for the entire company rose 21%, to $847.4 million, and the net loss was $23.1 million compared to $234.1 million in last year's first period. Sales in the books/music/video group increased 8.2%, to $443 million, and the pro forma operating income increased 68.1%, to $46.4 million. Amazon chairman Jeff Bezos said that the first-quarter results proved that the e-retailer's lower price policy is working. Low prices has joined selection and convenience as the "three pillars" of Amazon's marketing strategy, Bezos said. The company said that because the low price concept was working so well that it has lowered the price point to $15 from $20 for books to qualify for a 30% discount. Although Bezos couldn't promise when another price cut may occur, he said, "you can expect us to be quite generous" in passing along productivity gains to customers. Bezos explained that because Amazon should be able to hold its "fixed costs fixed" for a while, the higher volume produced by lower prices falls to the bottom line. Lowering prices "is something we can do for years," Bezos said.
Bezos also said he is very pleased with Amazon's Marketplace initiative, which lets customers sell used items through the e-retailer. Used orders represented 23% of U.S. orders in the first quarter and 12% of units. Listings of used products were up 60% in the period.
The strong quarter prompted Amazon to increase its sales-growth projection for 2002 from 10% to 15%, with unit growth increasing at a faster rate. Pro forma operating income is expected to be more than $100 million.
Bezos said that while the Borders.com site Amazon operates for the bookstore chain represents "only a small fraction of our sales," he was nonetheless very excited about Amazon's new alliance with the company. Under the agreement, Amazon customers who order books online will be able to pick up their items at any Borders superstore. The program is expected to be in place in time for the holiday season.
Customers who pick up items at Borders will be charged the Borders price plus tax; any discount offered by Amazon will not apply and there will be no shipping or handling charges. Sales for items picked up at Borders will be recorded by Borders and Amazon will receive a commission. Items can be returned to Borders. Bezos said the deal "solves the problem of acute need" when an Amazon customer can't wait for something to be shipped.
The two companies also reached an agreement through which Amazon will create a co-branded site for Waldenbooks. To be called Waldenbooks.com, the site is expected to be launched prior to the holiday season. The multiyear agreement has terms similar to the alliance Borders has with Amazon for its Borders.com site. All sales originating through the new site will be recorded by Amazon with a percentage of sales going to Borders. Inventory, fulfillment and customer service will be provided by Amazon.
