Bricks and clicks slow to connect - E-Commerce - retailers using online services to sell product

DSN Retailing Today, May 20, 2002 by Molly Prior

The deals, grouped under the e-tailer's "services" division, gave Amazon access to additional working capital. Once the results of 2001 rolled in, it was clear Amazon had succeeded in creating a promising ancillary business. Revenues from services, which currently Includes more than 30 partners, grew to $98 million in the fourth quarter, 9% of Amazon's total business.

In January, management indicated it expects to dramatically increase the size of both the Target and Circuit City relationships. The second phase of the Target relationship comes this summer when Target launches Target.common, an umbrella site that houses all three corporate nameplates--namely Target, Marshall Field's and Mervyn's--as well as an Amazon tab for hooks and music. Amazon also will oversee the new site's backend operations. The two partners launched the initial phase last fall, a high-profile Target-branded tab on Amazon.com.

Amazon's three-year partnership with Circuit City allows the e-tailer to generate revenue on those who do product research online and then go to the store to buy. Amazon began by selling a limited assortment of Circuit City products for in-store pickup. This year, the e-tailer will expand its selection of Circuit City offerings regardless of whether or not they duplicate Amazon's mix.

Amazon has said the Circuit City deal may become a template for similar deals with traditional retailers. "The template provides a profitable pathway for Amazon to monetize its customer flow in categories and on merchandise items that Amazon itself does not stock or sell at present, while leaving the door open for Amazon to eventually enter those categories," reported Salomon Smith Barney.

Amazon's ultimate goal, said spokeswoman Patty Smith, "is to allow our customers to find virtually anything they want online by partnering with best-of-breed retailers. Amazon has said all along it is open to more partnerships, and analysts have speculated they are more than likely to be announced by yearend with both large and niche players. And while 2001 rumors circulated about a large general merchant and a consumer electronics retailer, most of the talk these days surrounds the apparel category.

Amazon has not been slowed by its offline friends, as several analysts once predicted. On the contrary, the e-commerce pioneer has picked up steam over 2001, finally turned a profit and is now pursuing a dual strategy of growth and profitability. Amazon has pinned a revenue growth target of 10% or more. Analysts say services, coupled with International, will likely drive that growth.