Amazon getting into outlet biz--online

Summary:The e-retailing giant is testing an online outlet store, betting that this will be as popular as bricks-and-mortar, bargain-basement counterparts.

Amazon.com is betting bargain hunters will snatch up deals online as quickly as they do at the local thrift store or bargain basement.

The online retailing giant is testing Amazon.com Outlet, a new online store where the company hopes to move overstock and discontinued items much the way brick-and-mortar outlet operations do.

"Welcome to this special sneak preview of our new Outlet store," a message on the company's site read Wednesday. "Get a head start on your post-holiday bargain shopping and explore the great deals we've gathered from across the Amazon.com site."

Amazon (amzn) sent out email to customers Wednesday offering them the opportunity to preview the outlet site. The company often gives its customers a sneak peek of new stores so that it can generate feedback, company spokeswoman Emily Glassman said Wednesday.

The company also said it was still fixing a few things in the outlet store to prepare for its official launch, according to the site. Glassman, however, would not say when the store opening would be, but indicated that it could be soon.

But if the preview site is any indication of what Amazon will offer through the outlet, the Seattle-based e-commerce giant could be looking at a tough sell. Many of the deals are no better than what Amazon's main operation offers and shipping costs all but wipe out some of the truly good deals.

In one sense, the Amazon outlet site is just an expansion of brick-and-mortar retailing.

"They're obviously trying to unload excess inventory, which is not out of the ordinary for any retail store, especially someone that has such high volumes of goods," said Forrester Research e-commerce analyst Carrie Johnson.

Bargain hunting has flourished on the Web, in part driven by eBay and other auction sites. But outlet shopping--which offers the hands-on thrill of chasing down a good deal--flourishes in stores. Besides moving overstock items, manufacturers use outlet stores to unload "seconds," or items with minor flaws that did not meet quality control standards.

Amazon (amzn) The Mills, which operates 16 brick-and-mortar outlet malls, opened a 1.3 million square-foot shopping center in Anne Arundel, Md., on Nov. 17, pulling in 260,000 shoppers in its first weekend of operation.

As Amazon moves into online outlet shopping, the e-commerce retailer faces stiff competition from brick-and-mortar and online operations, but that may not matter, Johnson said.

"Any type of bargain outlet is going to drive traffic, even if it's only somewhat good deals," she said. "Amazon is banking on the fact the people who will shop in the bargain outlet are their regular customers, who are loyal to Amazon but who would still like to get a good bargain deal."

Gartner analyst Robert Labatt said that from a business standpoint, if Amazon is discounting products because they have a few items left, "it makes sense."

While some of the deals are not as good as Amazon Outlet indicates, many prices come in below competitors' prices but not necessarily below prices on Amazon's main e-commerce site. The outlet operation is advertising a Sharp DV-L70U portable DVD player for $899.98 or, as stated on the Web site, 40 percent below the $1,499 list price. But a couple of online retailers, such as Etronics, offers the DVD player for as little as $929.99. Amazon's main store also sells the DVD player for the $899.98 price.

Best Buy and other brick-and-mortar retailers report projection TVs as some of the fastest-selling items this holiday season. The Amazon Outlet sells the Sony KP-48S75 48-inch projection TV for $1,599.98, or 16 percent off the list price. Amazon's main site offers the same price, which Crazy Eddie, another electronics retailer, beats by about $200.

Digging deeper uncovers good prices on many smaller items, particularly in the outlet operation's "Amazing Deals" area. Bargains on holiday decorations are quite competitive--at least before factoring in the shipping costs.

Some of the hardware deals on the surface are outstanding, but in some cases shipping negates the low prices. One closeout item--Clairson 7 pre-loaded wall clips--sell for 48 cents or, according to Amazon, 90 percent off the $5 list price. But with a limit of one item per customer and standard shipping of $5.99, the final cost works out to be about $1.50 more than the manufacturer's list price. The item also is non-refundable.

The wall clip closeout is typical of many smaller-ticket items, where limits on quantities combined with shipping make them no bargain at all. Still, analysts are not necessarily convinced that matters.

"Amazon is fairly smart on the psychology of shopping, and they're trying to appeal to bargain hunters," Johnson said. "But Amazon knows that most of its customers are not bargain hunters and might be willing to pay extra shipping."

Amazon's Glassman dismissed concerns over shipping issues, saying customers can bundle products to reduce costs.

"We can offer great discounts on quality products," she said. "Let the customers make their own decisions."

The best part of bargain hunting comes from the chase and often requires the touch and feel at a real store. Now Amazon has found a way to offer that, and that could be compelling, Johnson said.

"It's the hunt of the deal, even though they didn't hunt for anything," she explained. "Amazon just delivered it to their door--even with higher shipping costs."

But Labatt warned that Amazon could alienate some of the customers it is catering to. A warning on the Amazon Outlet site notes that because of limited quantities "an item can run out of stock after you've added it to your Shopping Cart, but before you've submitted your order."

Labatt said that "could backfire on Amazon, because it will change the consumer experience with Amazon," he said.

"Even though it's the outlet site and there are disclaimers, the risk is consumers will have a bad experience because they ordered an item which suddenly isn't available."

Topics: Amazon

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