Amazon.com 2008 Annual Report Download - page 39

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Gross profit information is as follows:
Year Ended December 31,
2008 2007 2006
(in millions)
Gross Profit:
North America .................................................... $2,495 $2,031 $1,525
International ...................................................... 1,775 1,322 931
Consolidated ...................................................... $4,270 $3,353 $2,456
Gross Profit Growth Rate:
North America .................................................... 23% 33% 20%
International ...................................................... 34 42 21
Consolidated ...................................................... 27 37 20
Gross Margin:
North America .................................................... 24.4% 25.1% 26.0%
International ...................................................... 19.9 19.6 19.2
Consolidated ...................................................... 22.3 22.6 22.9
The increase in gross profit in absolute terms during 2008, compared to 2007 and 2006, 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 other 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 29%, 28%, and 28% of unit sales in
2008, 2007, and 2006. 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 2008 decreased by 69 basis points compared to 2007 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 and other
general merchandise, partially offset by increases in other revenue and improvements in vendor pricing.
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 and other
general merchandise.
International segment gross margins in 2008 increased by 25 basis points compared to 2007 resulting
primarily from increases in sales of products by other sellers and improvements in vendor pricing, partially offset
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 and other general
merchandise.
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