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Amazon adds PC sales
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August 29, 2001: 9:49 a.m. ET
Web retailer defies industry trend, calls prospects attractive
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NEW YORK (CNNfn) - Amazon.com launched its new online computer store Wednesday as PC sales remain mired in a slump that has sent prices and profits plummeting.
Amazon (AMZN: down $0.25 to $9.72, Research, Estimates) , whose shares have tumbled to below $10 in the last year as it struggles to turn its first-ever profit by the fourth quarter, announced plans for the PC store in June. The company will offer new and used products from Apple (AAPL: down $0.10 to $18.30, Research, Estimates), Compaq (CPQ: down $0.05 to $13.27, Research, Estimates), Hewlett-Packard (HWP: down $0.21 to $24.40, Research, Estimates), IBM (IBM: up $0.21 to $105.16, Research, Estimates) and Toshiba.
The launch comes a day after PC maker Gateway Inc. (GTW: up $0.17 to $8.77, Research, Estimates) said it is slashing nearly 5,000 jobs due to a protracted low demand for PCs and heavy discounting, which has eaten away at its profitability.
Amazon, which has been struggling with the burst dot.com bubble and a sluggish economy that has affected most retailers, is partnering with Ingram Micro Inc. (IM: down $0.20 to $15.03, Research, Estimates), the No. 1 distributor of computer products, to handle logistics and shipping.
The alliance is a change for Amazon, which in the last few years has let partners such as Toysrus.com (TOY: down $0.24 to $24.05, Research, Estimates) and Borders Group Inc. (BGP: down $0.11 to $23.01, Research, Estimates) handle inventory and sales, leaving Amazon to control logistics and shipping.
"We expect the economics will be attractive for us sort of from Day One, mainly because of the model that we have," Carl Gish, vice president of Amazon's electronics group, said.
Mirroring its practice of offering used books and other items, Amazon also will sell refurbished computers through a handful of partners, collecting a commission on each sale, executives said.
Amazon says electronics is its fastest-growing business and the unit -- which is combined with tools and kitchen products -- is its second-biggest after its core books, music and video operation.
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Amazon is dipping into the PC business at the industry's lowest point in years.
After the booming growth of the 90s, PC sales are falling from last year's levels and computer makers have slashed prices to attract buyers.
Amazon says while the overall PC industry may be stalling, more buyers are heading to the Internet in search of bargains and a friendlier shopping experience.
"PCs are the third-largest category of online sales after travel and apparel," Richard Chin, general manager of the new personal computer business, said.
"The dollar volume done (for PCs) on the Internet today is greater than that of books, greater than that of music. We are entering into a category that has a lot of promise," Chin said.
The new online sales will be available as a separate tab on Amazon's main page, and also can be accessed from its electronics sales tab, Chin said.
The store also will be cheap for Amazon to operate because order fulfillment and shipping will be handled directly by Ingram Micro, Amazon said.
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While the profit margin on computers and electronics may be smaller than for books and CDs, each sale should add more absolute profit dollars to Amazon's coffers, analysts said.
For example, a 5 percent gross margin on an $800 computer will boost Amazon's bottom line more than a 20 percent margin on a $40 order of books, said Jeetil Patel, an analyst with Deutsche Banc Alex. Brown.
"At the same time, Amazon doesn't have to do any distribution or fulfillment or even take any inventory risk. It's a nice beneficial model," Patel said.
Amazon declined to reveal how much business it expects the new store to generate, but said it will help the company deliver on its promise of turning a pro forma operating profit in the fourth quarter. 
From staff and wire reports
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