Amazon grows up

Online retailer Amazon.com has branched out even further from its bookstore roots, today launching a new toy store and an electronics store.

Amazon's Electronics store will feature buying guides, product reviews and user comments, similar to the comments section it features in its bookstore. The Toy & Games store will feature specialty and mainstream toys, and include a "Toys for Grownups" section with executive toys and party games.

A toy store had been rumoured for some time, especially after the company began featuring some games in the gifts section of its site last Christmas. Amazon isn't the only retailer branching out online. Just yesterday, online toy store eToys announced it would get into the book business, selling children's books online.

The electronics market has also heated up online of late. Of the major chains, Circuit City Stores Inc. is scheduled to open an online version of its store this month, and Best Buy has announced that it is looking to expand its online store to include consumer electronics. Several Internet pure-plays, including 800.com, have also begun selling consumer electronics online, and at least two more are planned for this autumn.

Amazon's new stores will send a message to consumers, said Seema Williams, an analyst at Forrester Research in Boston. "They've finally said to the rest of the world that we're not a bookseller. We're a general merchant," she said. "It's definitely a good move for Amazon to get out of just the straight convenience items and work its way into higher ticket, higher consideration goods."

Amazon has been working on the new stores for around a year, said Christopher Payne, general manager of Amazon's Electronics store. The company has expanded its distribution capacity during the past few months and will have 3.5 million sq. ft. of capacity operating by the holiday season, officials said.

Capacity has become a key issue for online retailers, as they try to ensure that products shipped all over the country arrive in a timely manner. Wal-Mart Stores Inc. which last month bought Asda in the UK recently signed deals with Books-a-Million Inc. and Federated Department Stores Inc.'s Fingerhut division to handle distribution of goods sold through its Web site. Consumer demand was behind the decision to move into toys and electronics, Payne said. Both categories make up the "lion's share" of products sold through Amazon's gift centre, and both were among the top requests from customers, he said. "Both categories also tend to be frustrating experiences for consumers," he said. "Shopping for toys with a child in tow brings up certain images. We're hoping can make it a better experience."

In the high-touch electronics category -- consumer electronics that require more customer interaction -- part of the better experience includes making sure customers have ample views of the products they're looking at, as well as multiple product specifications and reviews. Payne said that feedback from the company's 10 million customers should also be a draw. The company wouldn't discuss the impact the new stores would have on the bottom line, but analysts were optimistic on the deal. In a note issued this morning, Merrill Lynch analyst Henry Blodget said that the new categories should lead to higher revenue per customer.

"The key issue regarding Amazon.com is whether the company will be able to leverage its brand, infrastructure, and customer acquisition costs by continuing to generate higher revenue per customer," he wrote.

Investors seemed pleased with the deal. Amazon's stock was up $5 1/2 to $122 7/8 in mid-morning trading.

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