Amazon launches virtual catalog service in latest effort to increase profitability - Brief Article

DSN Retailing Today,  June 10, 2002  by Molly Prior

Tags: Amazon.com Inc.

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SEATTLE -- Five months after turning the corner to profitability, Amazon has drummed up yet another way to leverage its brand and technology to make money. At the tail end of May, the virtual 800-pound gorilla began testing a feature that allows mail-order catalog companies to post electronic versions of their catalogs on the Amazon.com platform.

Consumers can browse through the virtual pages, but to place an order they must call the catalogs' 800 numbers, which are clearly posted on the Amazon site. More than 1,000 catalogs are posted on the site and divided into eight categories--lifestyle, arts and hobbies, pet toys, industrial, medical and science supplies, car parts and home furnishings, said spokeswoman Carrie Peters. Featured catalogs include home furnishings retailer French Country Living and upscale jewelry retailers Cartier and Tiffany & Co.

The goal was to choose categories that increase the selection the most for consumers, as well as to feature products, such as high-end home goods, that are not readily available online, said Peters. Visitors can peruse through the catalogs for free and, for the time being, Amazon isn't charging retailers any rent for housing their virtual catalogs.

In recent years, Amazon has generated a nice cushion of working capital through a slew of alliances with retailers, such as specialty toy leader Toys "R" Us and trailblazer of discount cache Target Corp. Together, the 30-odd deals grouped under Amazon's "services" division create a promising ancillary business for the online giant. Revenues from the e-tailer's services division, which is just shy of its two-year anniversary grew to $98 million in the fourth quarter, accounting for 9% of Amazon's total business.

During its annual shareholders meeting last May, ceo Jeff Bezos said Amazon will continue to seek out and sign on new service partners. He added that compensation from future deals will continue to be a mix of fixed-fee, revenue sharing and per-unit payments.

Should Amazon begin charging for the virtual catalog service, as analysts suspect it ultimately will, it could opt to set up an initial fee and then charge its partners on a performance basis going forward, said Yankee Group retail analyst Paul Ritter. Ritter suggested Amazon go a step further and work with catalogers to give shoppers the choice of buying over the phone or purchasing online. Items could then be placed in the Amazon shopping cart, but most likely fulfilled by the catalog company to allow for a "frictionless checkout," said Ritter.

"Amazon's calling it a test at this point because they want to experiment to see how much utilization and visitation the catalogs will get," he added.

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