What you can learn from Amazon’s bumper profit

Online retail giant Amazon has astounded analysts and commentators by defying the US recession to post a 24% increase in net profit for the first three months of 2009.

Revenues rose 18% to $US4.9 billion, while net profit came in well ahead of market forecasts at $US177 million.

Here are some of the strategies Amazon is using to stay ahead of the pack. Are there any ideas you can use in your business?

Sharp pricing

There is no doubt Amazon is benefitting from the general move towards discount retailers, but the company’s margins actually remained stable during the period, indicating it has not resorted to deep discounts.

Instead, it has rammed home its pricing advantage in this area by offering free shipping on a wider variety of items and building up its loyalty programs.

A broader offering

Amazon is best known as a retailer of books, DVDs and CDs. But visit the site now and you can purchase everything from musical instruments and electronics to shoes and jewellery.

Amazon’s catch-all category of “electronics and general merchandise” now accounts for 42% of the company’s overall sales, up from 36% at this time last year. As we have seen in Australia with companies like JB Hi-Fi and The Reject Shop, being seen as the value retailer is very powerful in a downturn. The more products across which you can be seen to offer “value”, the better you’ll do.

Opening the marketplace

The way Amazon has opened its marketplace to other retailers has helped cement this position as the dominant value player and give it another revenue source. Retailers that want to sell through Amazon’s website must give a portion of their revenue to the online giant, but they see it as a small price to pay to access such as market.

Leon Kuperman, president of retailer Bidz, which sells jewellery through Amazon, told the Wall Street Journal the site is a “big marketer and they already have a huge customer base. Amazon is much better suited for a large retailer than a platform like eBay.”

Cost control

While Amazon has not laid off huge numbers of workers, it has closed three distribution centres and is cracking down on waste. “Everywhere we look… we find that we are doing every operation that we do in sub-optimal ways,” Amazon chief executive Jeff Bezos said last week. “We still have a lot of progress that we can make.”

New products 

Whatever you think of the Kindle electronic reader – and opinions are mixed at best – it appears this gamble has paid off. While Amazon refused to divulge specific sales figures, executives were extremely bullish about the product.

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