Amazon.com 2002 Annual Report Download - page 3

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Our pricing objective is not to discount a small number of products for a limited period of time, but
to oÅer low prices everyday and apply them broadly across our entire product range. To illustrate this
point, we recently did a price comparison versus a major well-known chain of book superstores. We did
not hand pick a choice group of books against which we wanted to compare. Instead, we used their
published list of their 100 bestsellers for 2002. It was a good representation of the kinds of books people
buy most, consisting of 45 hardcover titles and 55 paperbacks across many diÅerent categories, including
Literature, Romance, Mystery and Thrillers, NonÑction, Children's, Self-Help, and so on.
We priced all 100 titles by visiting their superstores in both Seattle and New York City. It took us six
hours in four of their diÅerent superstores to Ñnd all 100 books on their list. When we added up everything
we spent, we discovered that:
‚ At their stores, these 100 bestselling books cost $1,561. At Amazon.com, the same books cost
$1,195 for a total savings of $366, or 23%.
‚ For 72 of the 100 books, our price was cheaper. On 25 of the books, our price was the same. On 3
of the 100, their prices were better (we subsequently reduced our prices on these three books).
‚ In these physical-world superstores, only 15 of their 100 titles were discountedÌthey were selling
the other 85 at full list price. At Amazon.com, 76 of the 100 were discounted and 24 were sold at
list price.
To be sure, you may Ñnd reasons to shop in the physical worldÌfor instance, if you need something
immediatelyÌbut, if you do so, you'll be paying a premium. If you want to save money and time, you'll
do better by shopping at Amazon.com.
Third, our determination to deliver low price and customer experience is generating Ñnancial results.
Net sales this year increased 26% to a record $3.9 billion, and unit sales grew at an even faster 34%. Free
cash ÖowÌour most important Ñnancial measureÌreached $135 million, a $305 million improvement over
the prior year.1
In short, what's good for customers is good for shareholders.
Once again this year, I attach a copy of our original 1997 letter and encourage current and
prospective shareowners to take a look at it. Given how much we've grown and how much the Internet has
evolved, it's notable that the fundamentals of how we do business remain the same.
As always, we at Amazon.com are grateful to our customers for their business and trust, to each other
for our hard work, and to our shareholders for their support and encouragement.
JeÅrey P. Bezos
Founder and Chief Executive OÇcer
Amazon.com, Inc.
1Free cash Öow for 2002 of $135 million is net cash provided by operating activities of $174 million
less purchases of Ñxed assets of $39 million. Free cash Öow for 2001 of negative $170 million is net cash
used in operating activities of $120 million less purchases of Ñxed assets of $50 million.