Amazon clicks back to its dot.com core

When eToys bit the dust earlier this month, the news all but sealed the coffin on vertical pure-player retailers. Once considered the next best thing on line, this segment--which in its heyday counted such well known brands as Garden.com, Pets.com, Furniture.com and Fogdog.com among its ranks--has witnessed such a steady decline over the last 18 months that it would seem vertical dot.coms simply weren't meant to be.

Logically, such a finding would spell good news for e-tailers such as Amazon.com, which has gone to great extremes to catapult its business beyond a single category--perhaps in search of becoming the Wal-Mart of the Web.

Instead of rejoicing, however, Amazon, the default bellwether of Internet retailing, is now facing grave issues of its own. Earlier this month, it laid off 1,300 employees and closed one of its many distribution centers on news that fourth quarter earnings would fall short of anticipated levels.

On the surface, this round of revelations, which includes scaling back its workforce by 15% and posting a multimillion dollar loss for the 15th consecutive quarter since going public, is nothing new for Amazon. Since day one, the company has made very bold promises, including a slogan whose tone went from respectably ambitious (Earth's Biggest Bookstore) to downright presumptuous (Earth's Biggest Selection).

But all of this has amounted to little more than a rosy backdrop to a balance sheet whose most critical figures are deep in the red. And where many investors once held on to the notion that someone had to win the dot.com race--and therefore it might as well be the one with the most impressive sales figures in the greatest number of merchandising categories--today the financial community is singing a very different tune. Earlier this month, Lehman Brothers' vp Ravi Suria went so far as to warn of a possible "creditor squeeze" at Amazon later this year because of dangerously low levels of working capital.

With the heat turned up, Bezos is finally taking action to clean up the company's underperforming elements-partly to appease investors and partly to save the business. And these changes are nothing like Amazon has seen before. In a company-wide e-mail sent at the close of the holiday season, Bezos allegedly told his team it was time to cut "the crap out." Translation: Amazon is scaling back its merchandise mix and limiting product to the most profitable items.

In the short term, this change is bound to cause confusion with Amazon customers, especially those who bought into its "all-under-one-roof' consumer marketing pitch. But from a big-picture point of view, this may be the best business decision Amazon has ever made. If anything came out of the company's effort to be the e-commerce king of general merchandise, it was that the valuable dollars spent in its infancy to build its Earth's Biggest Bookstore brand were all but flushed down the drain with the addition of each subsequent merchandising category.

Of course, the in-your-face irony of Amazon's scaling back of merchandise, especially if it leads to the elimination of certain profit-weak categories such as Lawn and Patio, is that it redirects the company toward its roots as a vertical pure-player- a category with the dubious distinction of failing miserably in its quest to generate a profit formula.

But Amazon is not your average pure-player; it has demonstrated unparalleled order fulfillment and customer service, which have put it in a class by itself. Now it's time for the company to maximize its strengths in these areas--and the only way it will accomplish this is to surrender its pipedream of offering customers "anything they might want to buy on line" and, in the words of its founder Jeff Bezos, "turbo charge" its core business.

COPYRIGHT 2001 Lebhar-Friedman, Inc.
COPYRIGHT 2001 Gale Group