Amazon blazes trail in Europe

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Despite questions about its long-term viability and mounting pressure to turn a profit, Amazon.com is pushing full-steam ahead internationally.

The company's U.K. and German Web sites reported a combined $73 million in sales in the second quarter and are the top retail sites in their markets. Amazon also claims customers in more than 150 countries, but international sales' share has been flat--23% of total sales came from outside the U.S. in the second quarter, off one percentage point from a year earlier.

And Merrill Lynch expects Amazon's French operations, just launched three weeks ago, to lose about $25 million in 2001.

INTERNATIONAL EXPANSION

Despite what some analysts consider a gloomy outlook, overseas expansion has become top priority at Amazon. This spring, the company hired Diego Piacentini as its first senior VP-general manager of international, based at the company's headquarters in Seattle. A former European manager at Apple Computer, Mr. Piacentini said he's doing his job as long as international customers visit any Amazon Web site. The U.S. site is the second-most-visited retail site in the U.K. and the fourth-most-visited in Germany, according to MMXI Europe, a subsidiary of Media Metrix.

"It doesn't matter as long as the customer is happy. We do some marketing to get customers in Europe aware of our European sites because we can ship in a shorter amount of time, but it's not a real issue," Mr. Piacentini said.

Amazon recently created a section on its site that highlights its international properties, including the new French site.

But it's still a marketing dilemma since international customers that shop at the main U.S. site must wait three to five working days to receive their orders as opposed to overnight when a U.K. customer orders from the U.K. site. If a U.S. customer orders from German arm Amazon.de, the order will be processed in five to seven working days.

BOOKS IN HIGH DEMAND

"We have nothing against the global shopper shopping on international sites, but if it's their first time and it takes longer for delivery, they won't know how strong our service really is," said Steve Frazier, managing director of Amazon.co.uk. "But we've tweaked the sites to make sure customers know their options and we don't push them. Most of our customers are pretty smart."

Amazon has warehouses in the U.K., Germany and France, in addition to the U.S. Since most of the inventory at each warehouse is unique, it's not possible in most cases to forward an order to the warehouse closest to an out-of-country customer to speed delivery.

Christian Asmussen, research analyst at International Data Corp., said Europeans visiting the U.S. site have given Amazon an advantage in the increasingly competitive European marketplace.

"Amazon had the advantage of being a pioneer in the market, and since they already had European customers, they could convert them to the local sites without much trouble. Local booksellers have to fight the Amazon brand name," Mr. Asmussen said. "And local bookstores sell 90% local books and 10% English-language books, so the books Amazon brings to the market are in high demand on the Web."

FOCUS ON FRANCE

London-based research company Datamonitor predicted European online book sales will leap to $497 million in 2002 from $13.3 million in 1998.

The U.K. (Amazon.co.uk) and German (Amazon.de) sites launched in 1998 after Amazon acquired local online booksellers Bookpages.co.uk and Telebook, respectively. The purchases gave Amazon much-needed access to local book databases, and catapulted the sites to instant No. 1 status.

But there's a lot of work to be done in France. Amazon.fr suffered a high-profile six-month delay because it had to build its own book database after powerhouse France Telecom snapped up local bookseller Alapage. Fnac.com, owned by Pinault Printemps Redoute Groupe and operated by retailer Fnac, led the market in July with 420,000 unique visitors, and Amazon.com was a distant 11th place with 73,000 unique visitors, according to MMXI Europe.

In an attempt to gain ground since its formal launch at the end of August, Amazon.fr launched its first ad campaign--a print, radio, outdoor and online effort--via Havas Advertising-owned Ailleurs Exactement, Paris. It also recruited Cecile Moulard, formerly a top Internet advertising expert with media-buying specialist Carat, to oversee marketing and strategic planning.

Amazon doesn't have a global ad agency, using FCB Worldwide, San Francisco, in the U.S. and HHCL & Partners, London, in the U.K. because each market is at a different maturity level. For example, a recent U.K. TV campaign sought to assuage fears about buying online by promising that Amazon.co.uk delivers packages safely and quickly--a commercial that would not run in the U.S. because Americans are more comfortable with online shopping, Mr. Frazier said.

PARTNERSHIP MARKETING

But other marketing tactics do translate internationally. Amazon.co.uk has followed Amazon.com's strategy of partnering with big-name portals, forming alliances with Virgin.com, Yahoo! U.K. & Ireland and Microsoft Corp.-owned MSN.co.uk.

Various referral programs that reward Amazon customers for submitting new customers have become a global strategy, Mr. Piacentini said.

"Traditional advertising is important to get our name out there, but the most powerful advertising for us is word-of-mouth," Mr. Frazier added. "We like to think we pay close attention to what our customers want and provide a good experience so they'll tell other people about us."

Amazon has kept its shopping experience consistent internationally by transplanting the basic user interface, customer service and fulfillment model developed in the U.S. to the U.K., Germany and France, Mr. Asmussen said. And it's done a good job localizing the sites by adding local books, content and even payment methods.

"In Germany, people don't use credit cards, (heavily) so we had to let them pay by check or bank drafts," said Mr. Piacentini. "You can't just bring over an American product."

Amazon's international sites are also adding categories--the U.K. just launched videogames--but they definitely aren't as comprehensive as the U.S. site, which sells everything from power tools to toys.

In the U.S., Amazon.com invested in and partnered with Internet start-ups such as Drugstore.com and Pets.com to create the Amazon Commerce Network, which offers links to each partner's Web site. Each partner pays a hefty chunk of money to Amazon to be on its site.

It's probably a good thing the European sites have yet to go down this road. Amazon.com has watched the value of its U.S. investments drop as other e-tail categories struggle.

It was forced to renegotiate its deal with online car-buying service Greenlight.com, whereby Greenlight will now pay Amazon $15.25 million over two years instead of $82.5 million over five years. Amazon has a 5% stake in Greenlight.

JAPAN, SPAIN ON DECK?

Even worse, Amazon-backed furniture site Living.com filed for bankruptcy last month, leaving Amazon without the $145 million in payments it was due to receive over five years.

Despite demands from all sides to make money, Mr. Piacentini said Amazon will continue to seek investment opportunities internationally.

He was mum about where Amazon will expand next. Amazon.com just added a store for Spanish books. A customer service center was being set up in Japan, fueling speculation that Spain and Japan could be next.

For now, it seems, the company's got enough on its hands.

Copyright September 2000, Crain Communications Inc.

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