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Amazon: If You Can't Beat Them, Join Them

Amazon Tempts the Anti-Amazons
Offer to Showcase Goods Comes Amid Plan to Boost Price of Prime

By GREG BENSINGER - Wall Street Journal - Feb. 20, 2014 7:48 p.m. ET

Amazon.com Inc. is in talks to bring listings for J. Crew khakis, Ralph Lauren polo shirts and Lord & Taylor suits to its site, according to people familiar with the talks.

The discussions, which seek to win over retailers that have largely shunned the online marketplace, involve about 10 well-known retailers, these people said, including Abercrombie & Fitch Co. and Neiman Marcus Group Inc.

Amazon wouldn't sell the goods directly; the listings would be links to the retailers' own sites. The arrangement would generate traffic for the retailers, while providing Amazon with more customer data and a new enticement for its Prime shipping program as it plans to raise rates.



Abercrombie & Fitch is said to be one of the 10 or so big retailers that Amazon is talking to. Reuters
For the retailers, an accord would represent something of a deal with the devil. Amazon, with data on nearly 240 million customers and a willingness to lose money on new initiatives, is widely feared as a competitor, even among merchants that sell goods on the site.

"Most retailers consider Amazon a friend and competitor," said Bruce Cohen, a senior partner at the retail and management consultancy Kurt Salmon. "One of the challenges with Amazon has been that they control the product placement on their site, the look, the photos—and it's hard for many retailers to hand over that control."

The initiative could launch as soon as this summer, the people familiar with the matter said. Under one scenario it has discussed, Amazon would offer the goods with free shipping to its Prime customers, who pay $79 a year for membership, though the retailers would be responsible for arranging and paying for the deliveries, these people said.

Amazon's plan is similar to the business model of rival ShopRunner Inc., which also offers a $79 unlimited shipping program that includes several dozen retailers, including Toys 'R' Us and Timberland, that handle their own package delivery.

As described by the people familiar with the talks, Amazon would extend an existing program that has primarily attracted smaller retailers. The retailers pay Amazon fees for directing traffic to their websites and for any resulting transactions. These merchants process the customers' credit cards, while Amazon gains more data about the shopping habits of existing customers.

For Amazon, the proposed arrangement would help fill voids in its offerings and bolster its Prime program as it prepares a $20 to $40 increase in the annual fee for U.S. customers.

Analysts estimate Amazon has more than 20 million Prime customers, mostly in the U.S. The program helped boost Amazon's sales 22% last year to $74.5 billion.

A deal with Amazon could help some brick-and-mortar retailers increase online sales, which continue to be less than 10% of the total retail pie. But it would also carry risks.

Retailers are wary of how Amazon will use the customer data it collects, according to the people familiar with the talks. The company has angered some sellers on its site who believe the Seattle company uses its marketplace as a laboratory to test pricing strategies and spot new products to sell, in competition with them.

As well, these retailers worry that their products could lose some cachet in Amazon's vast sea of merchandise, the people said.

It isn't clear whether any retailers have yet signed on to the program, though some of the people said Amazon is preparing software that it could make available to merchants within the next month.

Amazon has suggested to some retailers, these people said, that they could eventually pay to use Amazon's warehouses and logistics network to ship packages to customers, a program known as Fulfillment by Amazon. That's a popular service among third-party sellers on Amazon who don't want to pay to house their own merchandise or manage delivery headaches.

Amazon's marketplace of millions of sellers has become an increasingly important driver of revenue and profit, particularly as the company widens its offerings into tablet computers, video-game programming, television-show production and a host of other initiatives. Some analysts estimate such third-party sales now account for more than half of Amazon's revenue for products sold.

Write to Greg Bensinger at greg.bensinger@wsj.com

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