Amazon opens four new stores

The four new stores--home improvement, software, video games, and gift ideas--are scheduled to open tomorrow, the company said. As part of the expansion, Amazon said it bought Tool Crib of the North, a catalog company that offers tools and other equipment.

Amazon's expansion comes as what is projected to be a record holiday shopping season draws near and retailers of all sizes are gearing up for what analysts expect to be a "make or break" time for many. Although many sites are expanding and offering specials, it has not been smooth sailing for some retailers selling online.

Over the weekend, Toys "R" Us suffered an outage, which continued to plague the site yesterday. The site appeared to be down because of overwhelming demand, possibly spurred by a special holiday discount catalog the company sent out.

The announcement also follows months of speculation on what products Amazon would sell next. The company alerted the public yesterday that it would announce a change to its product lineup today; since then, many observers speculated that the company would enter software and possibly home improvement.

Gomez Advisors analyst Martin DeBono said Amazon's entry into software, video games, and gifts isn't much of a surprise because the categories fit in with much of the company's other offerings. Amazon is already selling software, such as Microsoft Office, through its electronics store, and had a gift section during last year's holiday season.

But, DeBono said, the company's move into home improvement is somewhat unexpected, given that such products often don't fit into the standard-sized boxes used to ship CDs or videos. Also, home improvement has yet to take off online, although Ace Hardware-affiliated OurHouse.com is set to launch soon, and Home Depot plans to open its Web store early next year.

Jaleh Bisharet, Amazon's vice president of marketing, said the company had compelling reasons to set up each one of its new stores. Software, for one, is expected to be one of the top holiday shopping items this season, according to industry analysts. And last season, Amazon had seen high demand for a similar product offered on its site: video games.

The company also chose to tackle home improvement because it felt it could offer an online shopping experience superior to brick-and-mortar stores, Bisharet said. Amazon seeks to accomplish this task through a wide selection, buying guides, and editorial and customer reviews. In addition, Amazon plans to take the all-important, early-mover advantage in the category.

"I think we're extremely early to market," she said. "I think the early mover advantage is really important."

DeBono said Amazon's home improvement store also might offer significant advantages for the company, balancing the seasonal nature of its toys and electronics stores and helping to draw in new customers.

"Home improvement doesn't fit in, and perhaps that's the beauty of the strategy," DeBono said. "Now consumers will look to buy not just common items but uncommon items on the Internet."

Jupiter Communications digital commerce analyst Melissa Shore agrees that the big questions for Amazon center on the new home improvement store. Amazon's purchase of Tool Crib gives the company a quick start into the home improvement category, but Shore questioned whether the relatively obscure mail order tool company's systems are scaleable to the levels of traffic that Amazon is likely to draw this holiday season.

Jupiter projects online home improvement sales will grow from less than $100 million this year to $700 million next year. But Shore said Amazon will have a hard time capturing a significant portion of those sales once Home Depot and other big players move into the market. While Amazon might be able to sell tools and ceiling fans to some of its customers, Shore said the company will have a difficult time drawing in new customers through its home improvement store.

"People are not going to think of Amazon when they think of home improvement," she said.

The site additions also come during a year in which the company has greatly expanded its offerings, opening toys and electronics stores in July, as well as entering auctions and third-party store hosting. Many observers have raised concerns about Amazon diluting its brand name as it moves into more product lines.

Bisharet brushed aside those concerns, saying that Amazon's focus has always been on becoming a hub for shoppers to find and buy anything online. Amazon is merely responding to the opportunity the Internet provides and to the demands of its customers, she said.

"We think we're moving at breakneck speed," Bisharet said. "We're not going to stop."

But Amazon could be rushing to open its new stores. Offline retail giants such as Wal-Mart and Home Depot have taken cautious measures by delaying their site expansions until next year.

Bisharet, however, said Amazon's store openings were happening "just in time" for the holidays. She added that the holiday shopping peak usually hits around Thanksgiving weekend.

Although rumors have swirled that Amazon would enter the software market by acquiring online software retailer Beyond.com, the company has apparently built a software store on its own.

Other rumors linked Amazon with home improvement giant Home Depot. Instead, the company acquired Tool Crib to build out its home improvement store. Tool Crib also owns five retail stores, which Amazon did not purchase.