Amazon expands again, into toys and tech

As earlier reported, Amazon is moving further away from its bookstore roots. Fulfilling industry expectations reiterated yesterday, the Seattle, Washington, company has actually created a separate area for its bookstore, while the home page is now a welcome page that highlights assorted products from its many separate stores, according to company representatives.

In addition to toys and consumer electronics, Amazon offers videos, music, auctions, gifts, and electronic greeting cards. But despite the many new offerings, the Seattle, Washington, company is facing intense competition in all of its markets and continues to lose money. (See related story)

The two departures come as a range of online retailers continue expanding into Amazon's markets, gearing up for the coming holiday season. Barnesandnoble.com launched its music store last week, while eToys opened a children's bookstore yesterday.

But with the exception of auctions, about which the company has not yet released separate figures, Amazon has quickly dominated each new category it has entered.

"It's true Amazon counterattack mode to go for the jugular," said Lauren Cooks Levitan, an analyst for BancBoston Robertson Stephens.

Amazon's new offerings range from popular brand-name toys such as Lego and Barbie to specialty toys from small manufacturers. Amazon's electronics store carries everything from televisions to computer peripherals.

As with books and music, Amazon toys and electronics selections will feature reviews from both the company and its customers.

Although the stores are new, Amazon has been offering products in the toys and electronics categories for some time. In May, the company opened a "Star Wars" store, through which it sold movie-related toys, software, and games. The company has also been PalmPilots and camcorders on its homepage under the heading of "top-selling electronics."

Christopher Payne, general manager of the electronics store, said that Amazon decided to enter the toys and electronics categories after hearing feedback from its customers and by examining purchase patterns. Toys and electronics had "by far the lion's share" of sales in the company's gifts area, he said.

"That was a good testing ground for us," Payne said.

Meanwhile, Amazon is selling computer memory, hard drives, and modems in its electronics store, but it is not selling complete computers. Payne said the company decided not to offer PCs because the category appears already well-served by current vendors. He added, however, that the company might add computers if customers asked for them.

Of late, speculation had swirled around Amazon's next step. The company had made several announcements in recent months about opening new distribution centers and warehouse space, but didn't say why the centers were needed.

Based on information he had from toy distributors, Derek Brown, an analyst who covers e-commerce companies for Volpe Brown Whelan, last month predicted that Amazon would get into the toy business, a prediction he reiterated in a memo yesterday.

Less substantial rumors circulated that Amazon would enter the computer-related business through buying software company Beyond.com or computer-peripheral vendor Onsale. In the end, the company decided to develop both the toy store and the electronics store in-house.

Of the two, electronics is still a nascent category, with no clear leader and relatively few sales. eToys led in toy sales last holiday season, but consumers have tended to buy toys only during the fall and early winter, which means that there's little opportunity to build customer loyalty.

Before the announcement, some analysts speculated that if Amazon entered the toy market it would dominate it in the same way that Wal-Mart had taken the lead in the offline toy market: By beefing up its toy offerings during the holiday season and offering only the most popular products.

Payne and Brian Birtwistle, product manager of the toy store, said that Amazon would add products to both of its new stores in preparation for the holiday season. However, both said that the company planned to maintain a large selection in each category throughout the year.

Payne acknowledged that it may be difficult to sell products such as televisions online. Such products are "high touch," he said, meaning that unlike books or music, people may need to experience such products directly before buying them.

"Some of these products are higher touch than others," Payne said. "That's something we will learn as we go forward."