Amazon, Ingram book a deal

Ingram Book Group will be shipping books to some Amazon.com customers as part of a recently signed deal between the two companies.
Written by Troy Wolverton, Contributor on
Ingram Book Group will be shipping books to some Amazon.com customers as part of a recently signed deal between the two companies.

Ingram will ship orders of single books directly to customers in cases where Amazon does not have the books in its inventory, Amazon spokesman Bill Curry said. Under the deal, which was signed late last month and will go into effect in coming months, Amazon will pay Ingram for fulfilling the orders, Curry said.

"The only thing that a customer should notice is that their book may get there faster than they thought," Curry said. "We will be watching closely to make sure the experience is not degraded."

Curry declined to say specifically when the deal will go into effect or what the terms of the deal are. Ingram representatives directed questions about the deal to Amazon.

The outsourcing deal with Ingram is part of a gradual shift for Amazon, which has traditionally focused on guaranteeing customers a high level of service through managing all the steps of a customer's transaction.

While other e-tailers such as eToys took orders through their Web sites but relied on fulfillment specialists such as Fingerhut to handle shipping to customers, Amazon opened eight distribution centers, including five in 1999 alone, so that it could handle shipping of its goods on its own. As part of that expansion, the company rang up $2.1 billion in debt.

But the company has gradually moved away from trying to control the entire customer experience. Last year, for instance, Amazon began offering prescription drugs, automobiles, furniture and downloadable audio books through companies such as Drugstore.com and Audible.com.

In some cases, these deals blew up in Amazon's face. When Living.com closed shop last summer, Amazon lost its furniture store. Amazon also lost its high-end auction site when Sotheby's decided to roll its listings from Sothebys.Amazon.com into its Sothebys.com site.

Meanwhile, Amazon's provider of automobiles changed when CarsDirect bought Greenlight.com's assets, including its relationship with Amazon.

The deal with Ingram marks the first time the company has handed over fulfillment to a third party in its core book category.

Also in previous deals, Amazon has typically labeled areas such as its automobile store to inform customers that their products are coming from third parties. Such stores do not share the same shopping cart that customers use in Amazon-maintained stores.

But Amazon does not plan to make any special note to customers if their books may come directly from Ingram, and the books will go into the same shopping cart as most other Amazon products.

Usually, if a customer places an order for a book that is not in Amazon's inventory, the company will order that book from a distributor. After receiving the book and shelving it, Amazon will repackage it and ship it to the customer.

Under the new deal, Ingram will ship those books directly to customers. In cases where the customer has ordered multiple items, including items that Amazon does have in its inventory, Ingram will ship the book to Amazon, and Amazon will send the book and other items on to the customer.

Shipping products, whether between a distributor and a retailer or between a retailer and a customer, is expensive, Amazon Chief Executive Jeff Bezos noted at the company's annual shareholders meeting Wednesday. Because of that, Amazon will look for other opportunities to outsource fulfillment to distributors, he said.

"It just makes sense that more and more of that will happen in our business," Bezos said.

Last month, Thomas Weisel Partners analyst Sara D'Eathe reported that Amazon was soliciting a bid from an unnamed company to handle its fulfillment and customer service. The report set off speculation as to how much of Amazon's business the company would outsource.

The less inventory Amazon has to carry, the better for the company, said Kristine Koerber, a financial analyst who covers Amazon for WR Hambrecht. While she praised the deal with Ingram as a "great move," Koerber noted that selling books is a slowing business for Amazon.

"They really need to focus on their growing categories, on not carrying inventory for electronics, kitchenware, and tools and garden," she said.

Amazon's core media businesses--its books, music and video stores--grew only 2 percent on an annual basis in the first quarter of this year. While those businesses posted a pro forma operating profit, excluding certain cash and noncash charges, the company's new businesses, including electronics and kitchenware, posted a $46 million pro forma loss.

As part of a restructuring in January, Amazon closed a distribution center in McDonough, Ga., and laid off 1,300 workers, many of them from its customer service department. Koerber said she wondered whether outsourcing would lead the company to close other warehouses.

"It wouldn't surprise me if they close another distribution center or two down the road," she said.

To be sure, Amazon isn't getting out of the fulfillment business completely. On Wednesday, Amazon opened a new store for baby products with Babiesrus.com. As part of a deal signed with Toys "R" Us last year, and similar to the arrangement with the companies' co-branded toy store, Amazon will handle the fulfillment in the baby store. Toys "R" Us will manage the inventory and handle marketing for the new store.

And last month Amazon signed a deal with Borders to handle inventory and fulfillment for Borders' online bookstore.

Amazon's deal with Ingram is a rapprochement of sorts. After Amazon rival Barnes&Noble agreed to acquire Ingram in 1998, Amazon criticized the deal and moved to limit its dealings with Ingram. At the time, Ingram supplied a majority of Amazon's products and supplied nearly 60 percent of its products the year before. Ingram now supplies Amazon with between 10 percent and 27 percent of its products, according to regulatory documents.

Barnes&Noble scuttled the deal in June 1999 after the Federal Trade Commission staff reportedly weighed in against the merger.

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