Amazon.com 2002 Annual Report Download - page 36

our mix of sales during the period (including sales through Amazon Marketplace), competitive pricing
decisions and general eÅorts to reduce prices for our customers over time, as well as the extent to which
we provide free and reduced-rate shipping oÅers.
Gross proÑt for our BMVD segment was $528 million, $453 million and $417 million for 2002, 2001
and 2000, respectively, representing increases of 16% and 9% for 2002 and 2001, respectively. Gross
margin was 28%, 27% and 25% for 2002, 2001 and 2000, respectively. The slight improvement in gross
margin corresponds with the increase in higher margin sales through Amazon Marketplace, improvements
in transportation costs and inventory management, and continued improvements in product sourcing, oÅset
by price reductions and our everyday free shipping oÅer.
Gross proÑt for our ETK segment was $90 million, $78 million and $45 million for 2002, 2001 and
2000, respectively, representing increases of 15% and 76% for 2002 and 2001, respectively. Gross margin
was 14% for 2002 and 2001 and 9% for 2000. In 2002, improvements in product sourcing, inventory
management and transportation management, along with lower transportation costs, were oÅset by price
reductions and our everyday free shipping oÅer. In 2001, improvement in gross margin primarily reÖects
improvements in product sourcing and inventory management.
During 2002, sales of products through Amazon Marketplace increased signiÑcantly in comparison to
the prior year. If product sales through Amazon Marketplace continue to increase, we anticipate
improvement in gross margin, oÅset to the extent we oÅer additional or broader price reductions, free
shipping oÅers and other promotions.
Gross proÑt for our International segment was $249 million, $141 million and $77 million for 2002,
2001 and 2000, respectively, representing increases of 77% and 82% for 2002 and 2001, respectively. Gross
margin was 21% for 2002 and 2001, and 20% for 2000. The increase in gross proÑt in 2002 reÖects
increases in units sold by each of our four internationally-focused Web sites included in this segment (in
part due to the introduction of Amazon Marketplace on www.amazon.co.uk, www.amazon.de and
www.amazon.co.jp), oÅset by continuing eÅorts to reduce prices for our customers. During 2002, gross
proÑt improved $10 million in comparison to 2001 due to changes in foreign exchange rates (speciÑcally
the weakening of the U.S. Dollar in comparison to the Euro and the British Pound).The increase in gross
proÑt in 2001 reÖects increases in units sold by our www.amazon.de and www.amazon.co.uk sites, as well
as the launch of our www.amazon.fr and www.amazon.co.jp sites during the second half of 2000.
Gross proÑt for our Services segment was $126 million for 2002 and 2001 and $116 million for 2000,
representing Öat gross proÑt in 2002 and an increase of 9% for 2001. Costs associated with our service
revenues generally include fulÑllment-related costs to ship products on behalf of other businesses, including
costs to provide customer service, credit card fees and other related costs. Gross margin was 51%, 56% and
59% for 2002, 2001 and 2000, respectively. Gross proÑt from our Services segment largely corresponds
with revenues from our commercial agreements, which includes our Merchant.com program and, to the
extent product categories are not also oÅered by us through our online retail stores, the Merchants@
program, as well as amounts earned through miscellaneous marketing and promotional agreements. The
decline in gross margin from our Services segment relates to service costs classiÑed in cost of sales
resulting from the shift in the mix of our commercial relationships towards agreements that incorporate a
broader range of services, including fulÑllment. Also contributing to the decline in Services gross margin in
2002 was the expiration of certain high-margin marketing and promotional agreements. We expect
Services segment margins will decline again in 2003 since high-margin marketing arrangements are
expected to represent a lower percentage of our overall revenue mix for this segment. See Item 1 of Part 1
""Business Ì Additional Factors That May AÅect Future Results Ì Our Business Could SuÅer If We Are
Unsuccessful in Making, Integrating and Maintaining Commercial Agreements, Strategic Alliances and
Other Business Relationships.''
Shipping loss across all operating segments was $40 million, $19 million and $1 million for 2002, 2001
and 2000, respectively. The loss from shipping primarily reÖects the free and reduced-rate shipping oÅers,
oÅset in part by cost reductions from eÇciencies in our outbound shipping. We continue to measure our
shipping results relative to their eÅect on our overall Ñnancial results, with the viewpoint that shipping
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