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Amazon.com Adds CE Sales

In cyberspace, no one can hear you scream.

Otherwise, the din from e-tailers and retailers would have been deafening when Internet powerhouse Amazon.com added consumer electronics to its online mix earlier this month.

The July 13 launch of Amazon.com Electronics came as no surprise, as the book and CD seller had already dabbled in camcorders and VCRs via its now defunct gift shop. But its brand recognition and 10 million-strong customer base is expected to lend the site an immediate leg up over other CE cyber stores that have spent tens of millions of dollars developing and marketing their sites.

"There are a lot of very anxious cyber and brick-and-mortar retailers out there," observed Tony Levitan, vice chairman of Shop.org, an Internet retailing trade group. "[Amazon.com has] been successful at everything they've done, and they've got an enormous transaction-oriented customer base and a very, very strong customer service and fulfillment capability."

Interestingly, the site itself breaks no new ground, offering home entertainment, home office, computing and telecommunications products from such brands as Diamond Multimedia, Hewlett-Packard, JBL, JVC, Nakamichi, Olympus, Panasonic, Sony, 3Com and Toshiba. Features include product reviews, detailed product information, product images and customer comments -- hallmarks of Amazon's book, music and video sites.

Amazon's sourcing practices are controversial. Vendors contacted by TWICE say they are not selling the site. Products that appear are said to come from distributors and transshipments from other retailers. Amazon had no comment on its sourcing practices. (See story on p. 1. )

But despite the similarities, the company is confident that its high-profile name and considerable e-commerce skills will quickly set it apart from the competition, both virtual and terrestrial.

"We have high expectations," said Christopher Payne, general manager of electronics for Seattle-based Amazon. Payne, an eight-year veteran of Microsoft, wouldn't share his sales projections, but pointed to his previous assignment: creating Amazon's burgeoning video business. That enterprise became the market leader within 45 days of its launch.

"The online space is largely untapped in consumer electronics," he said, citing statistics that peg all Internet sales of CE products at $411 million, or less than 1% of the channel-wide total. "It's incredibly undersold at this point."

To help fill the void, Payne filled his department's ranks with such industry veterans as former Staples buyer Mark Berrada, who serves as lead buyer, and PC Magazine's Tom Mace, who heads up the editorial and information function.

"We warehouse and control all of our own product so that we can get it to the customer very quickly," Payne said. "If it's in stock, we ship within 24 hours of receiving an order. That was a key advantage in our book, music and video businesses, and it will be in electronics."

Orders, which can be mixed from the various Amazon stores, are shipped UPS, save for large-screen TVs and other oversized goods weighing in excess of 150 pounds, for which large-item carriers are employed. Although Amazon hasn't yet figured out how to provide onsite installation, consumers can direct their questions to a dedicated CE service staff, consult the web site, or receive a manufacturer referral. "Communication and convenience is an area where we can excel," he said.

What about pricing? Despite an everyday low price stance, that issue is only one part of what Payne calls the "overall value proposition." Indeed, he concedes that "sometimes we won't be the lowest" priced retailer.

Amazon's entry into CE and, simultaneously, toys was based on consumers' unpleasant experiences at retail. (See story on p. 10.)

As for product mix, the focus is clearly on home entertainment. Payne said "[PC] is a pretty well-served market on the Internet, and we have no plans now to sell anything beyond peripherals."

Meanwhile, manufacturers apparently reacted to Amazon's move with the same mixed emotions they feel toward all online ventures. "Some companies are more excited to embrace the Internet than others," Payne said. "We want to work closely with manufacturers and point out that it will be a great and profitable channel. Some will be slow to embrace that, and others won't."

Payne readily acknowledges that Amazon.com Electronics "is a huge undertaking," and that the July launch was designed to give him time to "learn and improve our offering" in advance of the holiday selling season. Yet analysts and competitors wonder whether founder Jeff Bezos has finally bitten off more than he can chew.

Amy Wright, a channels analyst with market research firm ARS said, "Consumer electronics are very different from the other products they carry. They require an extensive amount of customer support both pre- and post-sale, and the quality of Amazon's service in the next few months will have a significant impact on its reputation in the future."

David Cooperstein, research director of Forrester Research, said Amazon can be successful, however, "they're taking on the logistics of Desert Storm. Customer service for books will be child's play compared to all the service questions they're going to get on December 26."

Bob Weissburg, senior VP of strategic planning for Sony Consumer Products, agreed. "There is a big difference between selling books and consumer electronics online. There is more to becoming an authorized dealer in electronics than just having product available on a web site."

For their part, CE retailers, both cyber and storefront, took the defensive high ground against what they see as Amazon's lowest common denominator approach to the category.

"Amazon is doing a wonderful job of becoming the Wal-Mart of the web," said Greg Drew, founder of 800.com, one of the earliest and more sophisticated entries in the field. "I would be surprised if they carry more than low-end merchandise."

Robert Heiblim, chairman of E/Town, a consumer-friendly news, reviews and selling site, said he was "unimpressed" by the design and product assortment of Amazon.com Electronics.

Although he lauded Amazon for "drawing focus to consumer electronics online," Heiblim expressed surprise that the company would risk its credibility with consumers and manufacturers by carrying transshipped goods. "It's unethical, and they risk making critical vendors angry," he said.

RadioShack, which plans to launch a 30,000-SKU supersite this fall, fully intends to press its brick-and-mortar advantage over Amazon's pure play model.

"It all comes down to service," said senior VP Richard Borinstein. "Brick-and-mortar retailers have a tremendous advantage in delivery, pickup and aftersales support, and the better you can service the customer, the more successful your e-site will be."

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