Amazon resorts to price cuts for growth

LONDON: U.S online retailer Amazon.com said it would continue to slash prices and boost selection at its overseas units to beef up international sales even if it impacted gross margins in the short term.

On Thursday, the Seattle-based company reported a narrower first-quarter net loss of $10 million and raised its full-year sales outlook to $4.7 billion, one of the few retailers to predict growth amid the economic gloom gripping the sector.

In after-hours trading on Thursday, Amazon.com shares jumped 11 percent to $28, according to Instinet. Amazon"s international businesses in the United Kingdom, Germany, France and Japan are expected contribute heavily to the firm"s predicted 19 percent-plus sales growth for 2003.

Non-U.S sales rose 68 percent to $379 million in the quarter, helped partially by a weak dollar-to-euro exchange rate but primarily by its free shipping offers and the success of its newer electronic shop, which sells items such as mobile phones and Palm Pilots.

Shipments outside of the U.S. accounted for 41 percent of net sales in the quarter, putting the company within sight of its long-stated goal that international sales will account for 50 percent of its total business by 2005.

"It was an aspirational goal when we first said it, but we"re feeling pretty confident about accomplishing that," Robin Terrell, managing director of Amazon UK, told Reuters on Friday. Gross margins for the international unit remained stable at 22 percent for the past four quarters, trailing the U.S. unit by five basis points.

"We do expect margins to improve over time," Terrell said. The company is banking on

product-sourcing costs to decrease as sales rise and as its buying clout improves, thus offsetting any losses made on its free shipping policy and product discounting.

The company declined to break out country-specific results. Germany and the UK have been profitable on an earnings before interest, depreciation and amortisation (EBITDA) basis for the past six quarters, while its newer French operation continues to be loss-making.

© Reuters