The Trials of Jeff Bezos - Company Financial Information

Industry Standard, The, April 23, 2001 by Miguel Helft

Amazon still has its true believers. Some Wall Street investors who have been buying Amazon for months expect it to rebound, and they hope to make a killing on its depressed shares. [See sidebar, page 31.]

Last week, Amazon attempted to drum up excitement with another announcement: a deal to run the money-losing Net operations of bookseller Borders. The arrangement is modeled on Amazon's successful-to-date agreement with Toys 'R' Us, reached in September, in which the two companies divvied up the task of selling toys online. Toys 'R' Us focuses on buying and merchandising toys and owning inventory. Amazon handles the Web site, fulfillment and customer service -- thus avoiding the expensive fiasco it suffered during Christmas 1999, when it overstocked on some toys and understocked on others. The combined Amazon-Toys 'R' Us site did well over the holidays, and the deal has been hailed as a model for future success.

But calling the Borders deal "son of Toys 'R' Us" would be charitable. Borders' online foray has been a money-losing disaster and has been a giant drag on the bookseller's stock price. Even Bezos admits the alliance will not improve Amazon's bottom line for now. Unlike the toy deal, Amazon will not unload any inventory risk. The agreement looks a lot more like what Global Sports has been doing for years in the sporting goods industry. [See sidebar, at right.]

The announcement left the reporters and analysts gathered at a news conference in New York nonplussed. There were so few questions that the event broke up 20 minutes ahead of schedule. One prominent analyst described the deal as "a minor joint venture" and, exasperated at being lured to the conference by the presence of Bezos, said: "I've got to go back to my real job now?."

Those who attended were betting on something far more sweeping. Over the past few months, Amazon has been talking with a number of prospective partners, including giants such as Best Buy and Wal-Mart, hoping to repeat the Toys 'R' Us coup. But that's not likely to happen now. Brick-and-mortar retailers are no longer afraid of online retailers, and Amazon is now the one in need. "It is hard to imagine they will get something of the same magnitude," says Faye Landes, an analyst with Sanford Bernstein. "The world has changed, and no one is that desperate to have their dotcom bases covered."

Not so, says Bezos. He's still looking for more alliances, pitching Amazon's e-commerce infrastructure. "There are a lot of things we can do," he says. Maybe so, but whatever the company does will have to be pretty dramatic for Amazon to regain its old magic.

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Consumer Electronics Conundrum

Visit Sony's home-entertainment products Web site and you'll find a list of authorized Internet dealers that includes the likes of BestBuy.com, Sears.com and Walmart.com. Conspicuously absent is Amazon.com. You won't find the No. 1 Internet retailer listed as an authorized dealer on the sites for Panasonic, Pioneer or Toshiba, either.

None of these top companies sells their home-entertainment products to Amazon. Instead, Amazon is forced to buy Sony stereos, Toshiba DVD players and the like from distributors - at higher prices. "That is a heavy penalty," admits Amazon CEO Jeff Bezos. But the company already is buying directly from 300 manufacturers, and Bezos hopes the holdouts will come around to Amazon. After all, that's what happened with its other big businesses: books, music and videos.