Amazon.com 2001 Annual Report Download - page 2

To our shareholders:
In July of last year, Amazon.com reached an important way station. After four years of single-minded focus
on growth, and then just under two years spent almost exclusively on lowering costs, we reached a point where
we could afford to balance growth and cost improvement, dedicating resources and staffed projects to both. Our
major price reduction in July, moving to discount books over $20 by 30% off list, marked this change.
This balance began to pay off in the fourth quarter, when we both significantly exceeded our own goals on
the bottom line and simultaneously reaccelerated growth in our business. We lowered prices again in January
when we offered a new class of shipping that is free (year-round) on orders over $99. Focus on cost improvement
makes it possible for us to afford to lower prices, which drives growth. Growth spreads fixed costs across more
sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it’s good for
shareholders. Please expect us to repeat this loop.
As I mentioned, we exceeded our goals for the fourth quarter with pro forma operating profit of $59 million
and pro forma net profit of $35 million. Thousands of Amazon.com employees around the world worked hard to
achieve that goal; they are, and should be, proud of the accomplishment. More highlights from a notable year:
• Sales grew 13% from $2.76 billion in 2000 to $3.12 billion in 2001, and we achieved our first billion-
dollar quarter on reaccelerated sales in Q4.
• We served 25 million customer accounts in 2001, compared to 20 million in 2000 and 14 million in 1999.
• International sales grew 74% in 2001, and more than one-quarter of sales came from outside the U.S. The
U.K. and Germany, our largest international markets, had a combined pro forma operating profit for the
first time in Q4. Open only a year, Japan grew to a $100 million annual run rate in Q4.
• Hundreds of thousands of small businesses and individuals made money by selling new and used products
to our customers directly from our highly trafficked product detail pages. These Marketplace orders grew
to 15% of U.S. orders in Q4, far surpassing our expectations when we launched Marketplace in
November 2000.
• Inventory turns increased from 12 in 2000 to 16 in 2001.
• Most important, we stayed relentlessly focused on the customer, as reflected in a chart-topping score of
84 for the second year in a row on the widely followed American Customer Satisfaction Index conducted
by the University of Michigan. We are told this is the highest score ever recorded--not just for any
retailer, but for any service company.
Obsess over customers: our commitment continues
Until July, Amazon.com had been primarily built on two pillars of customer experience: selection and
convenience. In July, as I already discussed, we added a third customer experience pillar: relentlessly lowering
prices. You should know that our commitment to the first two pillars remains as strong as ever.
We now have more than 45,000 items in our electronics store (about seven times the selection you’re likely
to find in a big-box electronics store), we’ve tripled our kitchen selection (you’ll find all the best brands), we’ve
launched computer and magazine subscriptions stores, and we’ve added selection with strategic partners such as
Target and Circuit City.
We’ve improved convenience with features like Instant Order Update which warns you if you’re about to
buy the same item twice (people are busy--they forget that they’ve already bought it!).