Amazon.com 2007 Annual Report Download - page 40

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Gross profit information is as follows:
Year Ended December 31,
2007 2006 2005
(in millions)
Gross Profit:
North America ................................. $2,031 $1,525 $1,267
International ................................... 1,322 931 772
Consolidated ................................... $3,353 $2,456 $2,039
Gross Profit Growth Rate:
North America ................................. 33% 20% 24%
International ................................... 42 21 33
Consolidated ................................... 37 20 27
Gross Margin:
North America ................................. 25.1% 26.0% 26.9%
International ................................... 19.6 19.2 20.4
Consolidated ................................... 22.6 22.9 24.0
The increase in gross profit in absolute terms during 2007, compared to 2006 and 2005, corresponds with
increases in sales, offset by lower prices for customers including from free shipping offers and Amazon Prime.
Generally, our gross margins fluctuate based on several factors, including our product, service, and geographic
mix of sales; sales volumes by marketplace sellers; changes in vendor pricing, including the extent to which we
receive discounts and allowances; lowering prices for customers, including from competitive pricing decisions;
improvements in product sourcing and inventory management; and the extent to which our customers accept our
free shipping and Amazon Prime offers. Such free shipping and Amazon Prime offers reduce shipping revenue
and reduce our gross margins on retail sales. We view our shipping offers as an effective worldwide marketing
tool and intend to continue offering them indefinitely.
Sales of products by marketplace sellers on our websites represented 28% of unit sales in 2007, 2006, and
2005. Since revenues from these sales are recorded as a net amount, they generally result in lower revenues but
higher gross margin per unit. Since we focus on profit dollars rather than margins, we are largely neutral on
whether an item is sold by us or by another seller .
Gross profit growth is also affected by changes in exchange rates—see “Effect of Exchange Rates” below.
North America segment gross margins in 2007 decreased by 90 basis points compared to 2006 resulting
primarily from our efforts to continue reducing prices for our customers, including from our free shipping offers
and Amazon Prime, and a larger percent of overall sales in lower margin categories such as electronics.
North America segment gross margins in 2006 decreased by 92 basis points compared to 2005 resulting
primarily from changes in our revenue mix, as revenue in our retail business grew faster than revenue from
marketplace sellers. In addition, sales from electronics and other general merchandise grew faster than sales from
media and we continued our efforts to reduce prices for our customers, including from our free shipping offers
and Amazon Prime.
International segment gross margins in 2007 increased by 38 basis points compared to 2006 resulting
primarily from increases in sales of products by marketplace sellers, offset partially by our efforts to continue
reducing prices for our customers, including from our free shipping offers and Amazon Prime, and a larger
percent of overall sales in lower margin categories such as electronics.
International segment gross margins in 2006 decreased by 120 basis points compared to 2005 resulting
primarily from changes in our revenue mix as sales from electronics and other general merchandise grew faster
than sales from media.
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