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Amazon biz model flawed, says dotcom guru

Spreading itself too thin

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A bubble economy guru has slammed Amazon.com's strategy to be all things to all men.

Lauren Cooks Levitan, analyst at Robertson Stephens, criticised the e-tail giant for spreading itself too thin - and said this could have the knock-on effect of damaging its long-term profitability.

Amazon currently carries merchandise across 14 different categories - and Cooks Levitan reckons this results in costly order processing and shipping.

She analysed Amazon's prowess at handling orders with products in different categories by placing one order every week and tracking its progress. She found Amazon lost an average $2.91 per order - or a negative 30 per cent shipping margin - because it often filled an order from more than one distribution centre, CNN reported.

"We believe our results raise legitimate concerns about Amazon's long-term strategy and are an early glimpse of issues which are likely to become more evident as Amazon increasingly attempts to cross-sell products to its huge customer base and increasingly stresses its complex distribution infrastructure," Levitan wrote in the report.

She recommended the following changes to the Seattle-based company's business model to spur it to long-term profitability:


  • Smaller assortment of goods in its more recent categories - such as lawn and patio
  • More partnerships with other e-tailers
  • More deals like Amazon's co-branded site with ToysRus.com
  • More muscle regarding merchandising and product suggestions

"While we continue to believe that the online advantages can surely drive superior returns and profitability, we believe Amazon's breadth-efficiency conundrum is likely to eat into these gains unless business model revisions are made," Levitan added.

Amazon started to move away from its core books, audio and video market last July, selling consumer electronics and toys. It currently lists 18 million items, with about 10.6 million of these in its distribution centres. ®

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