FOOL PLATE SPECIAL
This morning, Amazon.com Outlet is officially launched. Absent the physical distance afforded to traditional retailers in separating their full price and cut rate branded stores, Amazon has to be a one-stop, catchall shop. The fact that the company is going beyond its own stale inventory to stock the new store with cutouts and closeouts is interesting. Actually, it might be the catalyst to propel margins to acceptable levels if it affords the online giant the opportunity to raise prices elsewhere.
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The cut rate market is huge. In the real world, megamall operator Mills Corp. (NYSE: MLS) draws tens of millions of mallrats every year to its individual properties. Loaded with outlet ventures of top brand retailers, the units often top the attendance lists of state attractions.
For specialty retailers, the outlet scene makes sense as discount stores can physically distance themselves from the full-price, bread-and-butter locations in traditional malls. That is not the case in the online world, however. The outlet store is just one click away. Amazon has little choice in the matter. It is even trying to steer traffic away from its older stores and toward the new venture this morning by plugging the launch on its home page.
It's the equivalent of walking into an AnnTaylor (NYSE: ANN) store in a suburban mall and being offered a free shuttle to the Ann Taylor Factory Store location on the other end of town. To compensate, Amazon has gone to a different hue. The Amazon.com Outlet store colors are soft orange and aqua pastels.
Amazon is also stocking its shelves a little differently. While traditional retailers use the outlet concept to rid themselves of clearance items, Amazon is going beyond creating a distribution channel for merchandise that has gone dormant in the warehouse: The company is also actively scooping up closeout items.
Like the overrun mavens at Consolidated Stores (NYSE: CNS), Amazon is also stocking up on distressed inventories elsewhere. Many of its CD deals are cutouts, CDs that went unsold and were returned to the record company distributors who in turn mark them down aggressively (and, in the days of vinyl, would "cut out" a hole on the sleeve cover to mark its discounted status).
While some analysts have been praising the new store as a way to clear out cobweb-ridden items from inside the store, Amazon is quietly carving itself a nice piece of the closeout pie. That's important because e-shoppers have grown used to great online deals. As Amazon ups its selling prices to reasonable street levels -- as most online retailers will have to in order to make the e-commerce model work with respectable margins -- the closeout efforts will help achieve decent margins while still providing the deep price cuts consumers have come to expect online.
For Amazon.com, this outlet is about to become an inlet.
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