Tom Szkutak: Amazon has been launching new categories, increasing selection and focused on improving the overall customer experience. Some of the things that it has done for Amazon.com, its U.S. website, it is also doing in international. One example of that is that it launched Prime in Japan recently, so that is something that Amazon has found meaningful for its U.S. website and is hopeful for Japan as well. There are many things that the company is working on to try to improve the overall customer experience, which includes increased selection. Another one is the launch of Merchants@ International. The company had solid unit growth in International, and one of the reasons why was because of launching Merchants@ International. Giving customers more additional selection that they did not have before, on top of growing retail selection has been helpful.
Shawn Milne (Oppenheimer): Could you comment on how you structure the actual buying experience?
Tom Szkutak: There are a number of things that the company is working on with seller experience. One of them is Seller Central. Another one, which improves the customer experience and the seller experience is Fulfilled by Amazon, or FBA. It allows customers to buy from third-party merchants with Amazon as the fulfiller. That is something worth noting, even though it is still in early stage. It is a way to improve the seller experience, so the seller can focus on all of the other aspect associated with running their business, but not have to worry about the fulfillment side.
Shawn Milne (Oppenheimer): Your incremental margin in the quarter was 11%. Are you quickly going to reach double-digit operating margins or are there other big investments?
Tom Szkutak: In terms of the operating margins nothing has changed. Amazon’s focus is to grow, to provide a great customer experience which will translate into maximizing free cash flow per share. In terms of the level of operating margins, the company thinks that double-digit operating margins are possible. That is not a projection, but they are possible. The company is going to focus on maximizing free cash flow per share. The way to do that is to drive operating profit dollars, continue to work on leveraging its operating cycle as well as its fixed investment.
Jeff Bezos: On Fulfillment by Amazon, the early sellers who are using that program are giving positive feedback. It does accelerate their sales, because the consumers on Amazon, the buying customers, as soon as a seller starts using Fulfillment by Amazon, the buyers get to enjoy Free Super Saver Shipping. They get to enjoy the privileges of Amazon Prime membership on those items. When a seller switches to Fulfillment by Amazon, a lot of the things that customers associate with items sold directly by Amazon all of a sudden apply from a customer experience point of view to those seller-sold items as well. That is a big deal for Amazon Prime members to be able to buy those items. As sellers join Fulfillment by Amazon, they can see an acceleration in sales, because of the improved customer experience of having Amazon do the fulfillment: offer free shipping, offer Fulfillment by Amazon, gift wrapping, next-day air shipment, et cetera, all the things that the company has worked over the last dozen years to get good at, those things automatically become something that is easy for sellers to offer their customers as well.
Heath Terry (Credit Suisse): You have talked about using the margin leverage in the business as fuel to lower prices and drive more free cash flow growth through the model. Do you think that the margin growth now suggests that you have hit the sweet spot as far as lower prices are concerned, and that lower prices from here will not necessarily drive higher free cash flow?
Tom Szkutak: No. The company is going to continue to make sure it has a dynamic environment. There are many competitors out there in each of the categories that it sells in, on all of its websites around the world. The company is going to continue to make sure that it has great prices for customers, and that is critical to the customer experience that it provides. It is one of the pillars that Amazon has talked frequently about, so ultimately it is trying to make sure that it offers that value proposition, which includes pricing, and it is the foundation of what it does.
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