From Bordeaux to Warhol: Amazon goes high-brow

Tucked somewhere in the Amazon campus in Seattle, there is a room that has holds some very important racks of wine.

The bottles are handled carefully. With gloved hands, an Amazon photographer pulls each one off a wire rack and then photographs it so that online shoppers can see each bottle in a clean setting. An image of each bottle's label and description will be uploaded to site so shoppers can look at them in detail. This has happened thousands of times, for each type of wine Amazon sells. It is decidedly not how Amazon sells DVDs or books.

Rather, this is part of the online retail giant's push into new categories of high-brow products -- including a $700 bottle of Montrose Bordeaux and a $200,000 Andy Warhol original depicting China's Chairman Mao -- all in an effort to create a new revenue stream and meet the demands of a more elite base of clientele.

It's doing so through it's third-party marketplace. The site already dabbles in some pricey products, like $9,000 diamond rings, but its latest categories, art and wine, show a whole other level of commitment.

"Everything we do at Amazon starts with the customer and works itself backwards," said Peter Faricy, vice president of marketplace for the company. "Those are all categories customers have given us the feedback that they would love to get."

It's a far cry from Amazon's typical offerings, which began with discounted books and expanded to thousands of items -- all sold at bargain prices with free shipping. Still, it's a natural path of evolution for a company that strives to sell all things to all people. Although these products aren't the easiest to sell through the Internet -- Amazon knows that from past attempts -- it's worth the effort for the company.

The third-party marketplace is a good way to dive in. The platform lets Amazon open up product categories without actually managing the inventory. Third-party sellers pay a small revenue-sharing fee for each item sold on Amazon's site. Typically, sellers can even use Amazon's large network of warehouses to make its deliveries. In the case of wine and art, however, sellers manage all the shipping themselves. It frees Amazon from the responsibility of delivering such products, which can be difficult given the regulation and care needed to ship items like alcohol and artwork.

Amazon gets to show off a selection of products and its partner sellers, in theory, gets the eyes of Amazon's millions of customers.

Tapping into the wine industry
In the grand scheme of things, wine might not seem so lucrative. Amazon made $61 billion on its online sales in last year. In contrast, wineries shipped $1.46 billion worth of wine in 2012. But, that's a 10 percent increase from 2011, and a 24 percent increase from 2010, according to a report (PDF) co-produced by ShipCompliant, a software company that ensures wine shipments comply with individual state laws. The report analyzes the shipments from the 4,700 wineries from the US.

The majority of these sales come from wine subscription programs, a popular way for wineries to sell directly to consumers, but online sales are a growing portion, according to Jeff Carroll, vice president of strategy and compliance at ShipCompliant.

While there are smaller, competing third-party seller sites out there, Amazon, which launched its wine program about a year ago, has a chance to capitalize on a fledgling market.

To make the products look good for its third-party sellers and to try to garner trust from the customers browsing the pages, Amazon made its product pages uniform, ensuring the same type of information is available for each product, with high-quality visuals.

To achieve this in wine, each of the 800 wineries that sell through Amazon's site send a bottle of each type of wine listed for sale on the site. Currently, the number is at 6,500 unique wine labels, across 70 different varietals of grapes. More than a thousand of these wines come from countries outside the US, including France, Italy, and Australia. The price of the wines offered range from $10 up into hundreds of dollars.

The company photographs the bottles, scans the labels into its system, and lists more information than it ever has for any product. That includes what region the wine is from, what varietal of grape its made from, what type of blend it is, what type of barrel it's been aged in, how much alcohol is in it, and what types of food it pairs well with -- all the things a wine connoisseur would want to know when buying a bottle of wine.

Hall Wines, a winery in California's Napa Valley, sells several bottles of wine through Amazon, including a $125 Kathryn Hall Cabernet Sauvignon.

Jeff Zappelli, director of memberships for Hall Wines, said the winery sells out of the Kathryn Hall when it offers it on Amazon, but the reality is, it's a rare wine and there aren't many bottles for sale to begin with. What's more is, Hall Wines doesn't sell a large volume of the other wines it's offered on Amazon site either. But, that doesn't matter.

It's about introducing Hall Wines to millions of Amazon's existing customers, according to Zappelli. Hall Wines' owners initially had concerns about selling through Amazon, mostly because of a fear that selling it through a platform like Amazon -- a site known cheap commodity products and even cheaper shipping -- would diminish its brand. No doubt, it's still a concern for the many thousands of wineries that haven't signed up with Amazon.

But, Zappelli thinks selling Amazon has done the opposite for Hall Wines because it gives the winery access to instant customer reviews and feedback.

"How do we break down the barrier of the sales so we're really having a relationship with our customers and our members? Not selling through a wine store, where we don't have that feedback," he said.

He's also found a willing partner in Amazon to learn about his industry and incorporate new features that make selling wine online easier. That includes features like dynamic shipping. Once customers chooses a bottle of wine from Amazon, the site will let them know how many bottles of wine they would need to purchase from the winery in order to qualify for one-cent shipping.

Reproducing a gallery experience
This attention to detail is something Amazon needs to apply to its art category, which the company launched in August.

The online art sales business is also a small piece of the pie when it comes to art sales. Like wine, it's a nuanced industry. Amazon is currently working with more than 200 art galleries to sell 45,000 pieces of art on sale on its site.

While Amazon won't disclose what pieces it's sold so far, previously listed items include a $1.5 million Andy Warhol original called "Flowers" and a $975,000 painting from Helen Frankenthaler, titled "Adirondacks." Both are now marked "unavailable," a possible indication that someone actually bought them through Amazon. Norman Rockwell's "Willie Gillis: Package from Home," however, did not sell through the site. The painting -- which brought attention to Amazon Art during the section's launch due to its $4.85 million listing price -- sold at a Chicago auction house for $2.8 million. This listing has since been removed.

Beyond the issue of price, Amazon wants to convince customers that buying online is just as good as walking into a gallery. For each piece, Amazon asks merchants to provide details like measurements, materials used, it's condition, and a biography of the artist. It has yet to set up a way to photograph every piece of art, but it does make sure to have high-resolution images available so customers can zoom in and see brush stroke details.

Although Amazon can't altogether replace the experience of physically standing in an art gallery to look at pieces, it's tried to emulate the experience. This includes one feature Faricy is particularly proud of, "view in room." The feature generates an image of the selected art piece in a room with furniture. It's already developed a bit since Amazon Art launched, adding more pieces of furniture to the image, but Faricy says this is an area Amazon wants to develop more.

"View in room" has potentially broader applications. Faricy said he could see the same techniques applied to large flat-screen TVs. Dynamic shipping, which has been very popular among wine customers, could also be applied elsewhere on the Amazon site, he said.

Of course, these are just possibilities. It's still early days for both the art and wine categories, but if Amazon can tackle this, they can continue to move up the chain in the luxury markets. This includes the secondary market that resells used lux items, such jewelry or handbags, according to Marshal Cohen a retail analyst at NPD Group.

It's what eBay already does successfully, and a model Amazon wants to emulate since it's yet another way to sell everything.

"It's not only about having a product -- they want to be the first place you go," he said, no matter if you're selling or buying.

Correction, 7:55 a.m. PT: The fees that third-party sellers pay on Amazon were stated incorrectly. Sellers pay a small revenue-sharing fee for each item sold.