It was not that many years ago that a good number of people thought Jeff Bezos was either not that bright or perhaps a bit unbalanced because they saw no way that Amazon.com could be a sustainable business model. Mr. Bezos' detractors (rightly so) pointed to the number of years the company went without making money.
Today, as a Barron's article entitled The World's Best Retailer suggests, Amazon is looked at quite differently. While not immune from the effects of the economic downturn (it just announced it would close three distribution centers), the online merchant comes off its best year ever in 2008. With an emphasis on centralized distribution and automation, the e-tailer markets and delivers goods at a lower cost than many multi-channel competitors.
"A lot of consumers are migrating to Amazon," Walter Price, a technology investor from Allianz Global Investors, told Barron's. "It simply has a better retail model, and it is only getting better."
"We have a negative operating cycle," Tom Szkutak, chief financial officer at Amazon.com, told attendees at a recent Morgan Stanley conference. "So, as we grew, we generated cash from working capital. And we are all about maximizing profit dollars, not individual margins."
"We really want to offer low prices every day...[but breadth of] selection is very key to growth," he added.
"E-commerce now starts and ends with Amazon, and eventually it will show up with higher sales," Mr. Price said. "As they get more volume, their costs relative to their prices should come down, which should improve their profits over time," he says.
Mr. Price also sees Amazon's move into web services, AKA cloud services, as another way for the company to leverage its investment in systems such as database development and management to generate profits from other companies with neither the focus nor the finances to do it themselves. Amazon, according to Barron's, has spent $2 billion on its systems over the past 10 years.
Discussion Questions: Is Amazon.com one of the world's best retailers (if not the best)? What makes it so? Where do you see the greatest opportunities for the company in the future? What practices should other retailers pick up from them?