Amazon’s growth is shaking up retail

By Brad Stone
New York Times / September 20, 2009

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PHOENIX - The hum of 102 rooftop air conditioners and a chorus of beeping electric carts provide the acoustic backdrop in’s 605,000-square-foot distribution facility on this city’s west side. But the center’s employees can almost always hear Terry Jones.

On a recent afternoon, Jones, an “inbound support associate’’ making $12 an hour, steered a hand-pushed cart through the packed aisles and shouted his location to everyone in earshot: “Cart coming through. Yup! Watch yourself, please!’’ Jones explained that he was just making his time at Amazon “joyful and fun’’ while complying with the company’s rigorous safety rules.

But his cries might double as a warning to the retail world: Amazon, the Web’s largest retailer, wants you to step aside.

Fifteen years after Jeffrey P. Bezos founded the company as an online bookstore, Amazon is set to cross a significant threshold. Sometime later this year, if current trends continue, worldwide sales of media products - the books, movies, and music that Amazon started with - will be surpassed by sales of other merchandise on the site. (That already occurred this year in its North American business.)

In other words, in an increasingly digital age, Amazon is quickly becoming the world’s general store. Alongside the books and CDs and DVDs are diapers, Legos, and power drills, not to mention replacement car clutches and more arcane items like the Jackalope Buck taxidermy mount ($69.97).

“Amazon has gone from ‘that bookstore’ in people’s mind to a general online retailer, and that is a great place to be,’’ said Scot Wingo, chief executive of ChannelAdvisor, an eBay-backed company that helps stores like Wal-Mart and J.C. Penney sell online. Wingo envisions e-commerce growing to 15 percent of overall retail in the next decade from around 7 percent.

Indeed, Amazon has been gobbling e-commerce market share since 2006, taking away customers from eBay in particular. But its advances are shaking up the entire retail world. Giants like Wal-Mart are warily replicating elements of its strategy, while small independent retailers in sporting goods and jewelry now worry their fate will be similar to that of small bookstores and independent video rental shops.

Amazon’s expansion strategy has allowed it to thrive during the recession, even while its own media business has stagnated. Over the last year, shoppers have bought fewer books, CDs, and DVDs, in many cases opting for cheaper digital downloads.

During the quarter ending in June, sales of other products, which the company lumps together on its balance sheet in a grouping dubbed “electronics and general merchandise,’’ grew by 35 percent, to $2.07 billion.

Its ambition to sell more of everything is constantly on display these days. In July alone, Amazon introduced separate hubs on its site for outdoor sporting goods and cellphones and wireless plans. Then it capped the month by buying an emerging competitor, the online shoe and apparel retailer

Aside from using its stock and $3.1 billion in cash and marketable securities to make acquisitions, Amazon has fueled its growth as a general retailer by nudging customers to buy a variety of products by offering free shipping and speedy delivery.

Amazon executives are nonchalant about the shift to general retailing, regarding the moment as destiny ever since the company announced its ambition to offer the biggest selection of goods on earth, before going public in 1997. But they have reason to feel vindicated: After the dot-com bust, some analysts thought Amazon could go broke stocking such an array of merchandise.

“It means we are becoming increasingly important in the lives of our customers,’’ said Jeff Wilke, Amazon’s senior vice president of North American retail.

Amazon’s profit and margins have always been slender; it earned only $645 million in 2008, up 36 percent from the year before, compared with Wal-Mart’s $13.4 billion, up 5 percent. But Wall Street is more enamored by the promise of the online retailer, valuing Amazon at around 60 times earnings and Wal-Mart at 15 times earnings.