Retailers’ Friend or Foe?

How Amazon Stacks Up as a Retail Partner

December 19, 2002 moves from online retailer to offering merchandising and marketing partnerships with other retailers. In this report, we look at how well the online e-tailing leader is doing in the partnership arena.

NETTING IT OUT has changed from being simply an online retailer to being a provider of online retailing services to other retailers.

Here’s a first look at how stacks up as a merchandising and marketing partner for retailers from the shopper’s point of view.

We evaluate Amazon’s Apparel and Accessories store. It’s a unique cross-brand/cross-retailer shopping experience. The bottom line: this aggregated site will drive brand and product awareness and will probably generate sales. Many customers will discover brands and retailers first on Amazon and then take their business directly to their preferred retailers. This is good news for the participating retailers and brands.

We’ve identified eight core competencies that we believe multi-channel retailers need to master in order to thrive in the Customer Economy. We evaluate Amazon’s other e-channel offerings to retailers against that framework.

FROM COMPETING ONLINE RETAILER TO E-MERCHANDISING PARTNER is on a roll. Like most online retailers this holiday season, Amazon’s revenues are looking pretty robust in the last couple of weeks before Christmas.

But the big news for Amazon-watchers is the company’s apparent success in expanding its business model to become the preferred e-channel partner for many of the world’s best-known retail brands.

When first appeared on the scene, established retailers thought the company’s vision was naïve and its gameplan was doomed. As Amazon began to gain traction, retailers began to fear Amazon’s price-discounting, and they began to envy the company’s superior knowledge of customers’ profiles and buying behaviors. In 2001/2002, retailers’ disdain gave way to grudging respect as Jeff Bezos began to come courting, offering retailers an opportunity to benefit from the customer experience and customer franchise.

In 2002, made significant headway in two areas:

1. As an Online Aggregator and lead generator for apparel and accessories’ brands

2. As the E-Channel Supplier for major retailers

Let’s take a look at’s accomplishments and challenges in wooing retailers in each of these areas.


On November 7th, launched its holiday season piece de resistance--its Apparel and Accessories store. (See Illustration 1.) On the day of its launch, dozens of well-known retailers were represented, including Eddie Bauer, the Gap, Nordstrom, Lands’ End, and Target. (See Illustration 2.)’s New Apparel and Accessories Store
Illustration 1.’s Apparel and Accessories store offers one-stop shopping across a huge selection of clothing, shoes, and accessories.

Participating Retailers
Illustration 2. These are the retailers that were participating in Amazon’s Apparel and Accessories store in December, 2002. Note that several of these stores sell apparel in multiple categories.

Appealing to Apparel Brands must have also worked directly with the suppliers of the brands that many of these retailers offer. First, and the retailer had to convince each brand manufacturer to permit its wares to be offered on the site. Second, features the apparel brands as well as the retailers’ brands. In December, 2002, over 400 brands of apparel were on offer.

We suspect that the brands may be subsidizing some of the costs associated with digitizing all of their product images in exchange for Amazon’s product placement and merchandising services. And it will be interesting to see where the revenue streams to Amazon actually come from--how much of Amazon’s revenues will come from commissions on sales vs. product placement, merchandising, and spotlighting retailers and brands.

Why Retailers Need Amazon

What convinced these retailers to each sign a three-year merchant agreement with and to go to the extra work of connecting their e-catalogs and inventory availability to Amazon’s site? As one retailer explained to us: “No matter how good your own Web site is, nor how strong your brand, you probably have to be on Amazon, too.”

What offers retailers is the ability to acquire new, qualified customers--shoppers they might not have found any other way. While Amazon hasn’t released the details surrounding the contractual relationships it has with the retailers that have participated to-date, the company’s SEC filings reveal that Amazon is typically paid on a commission basis for any sales that result through its program.

Of course, the overhead associated with integration are not trivial. That’s why both and the participating retailers are seeking long-term arrangements. Each retailer has had to prepare its e-catalog to’s specifications, meta-tagging the content according to the categories included in Amazon’s apparel store. And each retailer needs to provide integration into inventory availability information. This kind of integration is easier today than it was ...

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