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Amazon powers ahead

28 February 2005

Despite some abrupt lurches in its share price early in the New Year, Amazon powers on, and with no competition to speak of it is now expanding rapidly. Its estimated growth for 2004 was 28% to $6.8 (£3.54 billion) turnover but its figures have surpassed that. Not many retailers can look forward to anything like this.

Partly this is because Amazon International is booming, with a sales lift of 53% to $3 billion in 2004. This compares to 6.4% sales growth, for instance, in the UK book trade as a whole in 2004, as shown by the Total Consumer Market figures, but Amazon UK was widely thought to be the biggest gainer. The International division accounts for 44% of the online retailer’s overall sales for the year, up from 38% in 2003.

Amazon is also in a strong position to grow further, since it has some huge advantages over bricks and mortar booksellers. It turns over its inventory 17 times a year, nearly double the stock-turn conventional retailers can achieve. Its cost of expansion is also cheap because Amazon does not have the huge cost of opening up new stores.

New initiatives have worked well because of economies of scale and low costs. Its merchant activities, which come from other merchants selling on Amazon, contributed 28% of total units sold in the fourth quarter of 2004 and on these sales it also avoids the additional costs of labour and distribution.

20% of Amazon’s sales are now from used books, but the retailer has managed to grow second-hand book sales, despite trade opposition, because it suits the book-buyer. The individual or bookshop selling each book handles the despatch, so this business contributes handsomely for Amazon, given that they are already selling the books in any case.

The latest initiative is Amazon Prime, its first membership programme, which for an annual fee. offers unlimited two-day shipping with no minimum purchase requirement.

All this means that the online retailer has posted stellar 2004 results, with turnover of £6.92 billion (£3.7 billion), but with gross profit increasing to £1.6 billion (£850 million) from $1.26 billion (£670 million) in the previous year.

Amazon really does look unstoppable now.