Advertisement

Amazon.com Makes Broad Price Cuts

From Bloomberg News

Amazon.com Inc. on Tuesday said it will slash more book prices by as much as 40% as the Internet bookseller seeks to lure customers from established retailers.

The promotion was increased to 400,000 titles from the Amazon.com 500 selection and other featured books. It also will cut prices on paperbacks by 20% and hardcovers by 30%, matching discounts offered by Barnes & Noble Inc.'s Web site, which started last month.

“They’re looking to build market share and increase traffic to their Web site,” said Ryan Jacob, director of research for IPO Value Monitor in New York.

Amazon.com’s move comes amid concern that retailing on the Internet won’t be as popular as some analysts and executives had projected. International Business Machines Corp., for one, said it plans to close its year-old World Avenue shopping mall on the Web because of slow sales.

Advertisement

“It’s certainly not proven it can work,” said Steve Zenker, a fund manager at McCabe Capital Markets in King of Prussia, Pa. He said he expects Amazon.com’s stock to be hurt.

Shares of Amazon.com fell $1.25 Tuesday to close at $19 on Nasdaq. The stock fell below its offering price four days after it went public at $18 a share on May 15. Shares in the IPO, which raised $54 million, had risen 31% the first day before falling in subsequent days.

“We’ve always offered the biggest selection, and with these prices, Amazon.com offers the lowest everyday book prices anywhere in the world, online or off,” said Jeff Bezos, Amazon.com’s chief executive, in a statement.

On Tuesday, analysts for the company’s three underwriters recommended that investors buy the stock in new coverage. The three brokerages are Deutsche Morgan Grenfell, Alex. Brown & Sons Inc. and Hambrecht & Quist. An analyst at Deutsche Morgan, which led the stock sale, set a 12-month price target of $26 a share.

Advertisement

Amazon.com competes against Barnes & Noble and Borders Group Inc., which are expanding their presence online. Barnes & Noble’s site, for one, gives customers access to 1.5 million books, with 30% off hardcovers and 20% off paperbacks it has in stock.

“They would probably have no problem in engaging in predatory pricing to knock Amazon.com out of the water completely,” Zenker said.

CUC International Inc. is also turning up the heat on Amazon.com. CUC’s Chief Executive Walter Forbes in April said he expects the company’s book sales to rise on the Internet by offering titles for 10% less than its competitors.

While the Amazon.com discounts are designed to lure more customers and boost sales, the company warned in its prospectus that it expects its losses to widen as its sales rise and that it may never make money. In the first quarter, its loss widened to $3 million from $331,000 as revenue rose twentyfold.

Amazon.com offers a catalog of 2.5 million titles on its Internet site.


Advertisement