Amazon.com 2004 Annual Report Download - page 43

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Gross profit information is as follows:
Year Ended December 31,
2004 2003 2002
(in thousands)
Gross Profit:
North America ........................ $1,023,552 $ 866,664 $740,985
International .......................... 578,445 390,504 251,633
Consolidated .......................... $1,601,997 $1,257,168 $992,618
Gross Profit Growth Rate:
North America ........................ 18.1% 17.0% 12.7%
International .......................... 48.1 55.2 78.0
Consolidated .......................... 27.4 26.7 24.3
Gross Margin:
North America ........................ 26.6% 26.6% 26.8%
International .......................... 18.8 19.5 21.5
Consolidated .......................... 23.1 23.9 25.2
The increases in gross profit in absolute terms during 2004 and 2003 compared to prior year periods
correspond with increased revenue, including from increased sales volume by third-party sellers, offset by our
year-round free shipping offers and lower prices for customers. Generally, our gross margins fluctuate based on
several factors, including our product and geographic mix of sales during the year; sales volumes by third-party
sellers; changes in vendor pricing; lowering prices for customers, including from competitive pricing decisions;
and the extent to which our customers accept our free shipping offers. Free shipping offers reduce shipping
revenue and reduce our gross margins on retail sales. We view our shipping offers as an effective marketing tool
and intend to continue offering them indefinitely. Additionally, in 2005, we introduced a new shipping
membership program, Amazon Prime, in which members receive free two-day shipping and discounted overnight
shipping.
North America segment gross margin in 2004 was consistent with 2003, with each of these years down
slightly from 2002. Changes in mix of product sales towards lower gross margin product categories and price
reductions for our customers, including from our year-round free shipping offers, were offset partially by
increased sales volume by third-party sellers and volume discounts we receive from our product suppliers.
International segment gross margins declined during 2004 and 2003 compared to prior periods resulting
from our efforts to continue reducing prices for customers, including from our free shipping offers, and from a
shift in mix of product sales towards lower gross margin product categories, offset partially by increases in sales
volume by third-party sellers.
Sales of products by third-party sellers on our websites continue to increase, representing 26%, 22%, and
17% of unit sales in 2004, 2003, and 2002. Since revenues from these sales are recorded as a net amount, they
generally result in lower revenues but higher gross margin per unit. If product sales by third-party sellers
continue to increase, we anticipate the higher gross margin attributes of these sales will partially offset the effect
on our gross margins of our strategy to lower prices for customers over time by offering additional or broader
price reductions, free shipping offers, and other promotions.
Gross profit growth is also affected by changes in exchange rates. See “Effect of Exchange Rates” below for
additional information on the effect on reported gross profit of changes in exchange rates.
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