Amazon.com: as frugal as ever? |
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It might seem that ecommerce giant Amazon.com had found every possible way of cutting costs. But it turns out those Snickers bars didn’t need to be bathed in light after all.
Workers at one of the company’s fulfillment centers in Kentucky figured out how to save some money on energy bills by unscrewing the light bulbs in their cafeteria’s vending machines -- a policy that has since been adopted company-wide.
“Every cafeteria has four or five vending machines. Every vending machine has light bulbs in it to make the advertisement more attractive,” explained Amazon CEO Jeff Bezos at the company’s recent annual meeting in Seattle. “And so they went around at all of our fulfillment centers and took all the light bulbs out.”
Amazon says the policy saves an estimated $20,000 a year on electricity.
The vending machine initiative is a sign that Amazon — where workers famously had desks made of wooden doors nailed to two-by-fours in the company’s earlier, money-losing days — remains in some ways as cheap as ever, despite being a $33 billion company that is profiting handsomely in the current recession.
From its efforts to squeeze more efficiencies out of its fulfillment centers to its strategy of building a new TV advertising campaign out of amateur customer videos, Amazon is continually looking for ways to do things on the cheap.
But while investors might cheer Amazon’s cost-consciousness, the approach has also left the company open to criticism that it’s stingy, and doesn’t appropriately give back to the community.
To be sure, Amazon does spend heavily in certain areas, including strategic initiatives such as the Kindle electronic reader. But as Bezos’ focus on vending machine lights shows, the company hasn’t stopped looking for ways to shave costs from its core online retail business.
“It’s a high-volume, low-margin business, so any opportunities to cut costs are going to have a positive impact on them,” said Dan Geiman, an analyst covering Amazon for Seattle brokerage McAdams Wright Ragen Inc. “These little things probably do add up.”
Geiman said while cost-cutting is common at many companies today, Amazon’s frugal ways reflect “more their culture than the immediate economic conditions.”
Amazon has been focusing a lot of efficiency efforts on its network of fulfillment centers, which stock and ship millions of books and other products. Bezos recently spent a week at a fulfillment center in Lexington, Ky., to review the ongoing “kaizen” process designed to improve workplace function and eliminate waste. (Kaizen, which means “continuous improvement” in Japanese, was deployed by Toyota in auto plants during the 1980s.)
Amazon also consolidated parts of its fulfillment network this year, shutting down three centers in Pennsylvania, Indiana and Nevada — the first such closures since 2006.
“Looking at every aspect of the operation has always been Jeff Bezos’ modus operandi,” said Robert Spector, Seattle-based author of “Amazon.com: Get Big Fast,” a book about the rise of the e-commerce company. “He understands that all of it eventually shakes out to the bottom line.”
Amazon has found other creative ways to do things on the cheap. The company, which hasn’t done much TV advertising in recent years, this month invited customers to submit 30-second videos about Amazon, which may be used as the basis for a future TV ad campaign.
Essentially, Amazon is applying the “crowdsourcing” concept to TV advertising — collecting content from its vast customer base (much as it does with product reviews) and using that to create ads.
The cost of the customer ad contest to Amazon, compared to what it would spend on a traditional TV ad campaign, is minimal: The company has committed to awarding Amazon gift cards valued at $10,000 to the two winners. Those winners won’t make any additional money if Amazon uses their videos in TV ads, according to the contest rules.
Amazon’s continued frugality is all the more striking given its strong performance so far in the recession. The company reported sharp growth in profit and revenue in the first quarter of 2009, with sales jumping 18 percent to $4.89 billion and net income rising to $177 million, up 24 percent compared to the same quarter a year earlier.
As Amazon’s fortunes soar, the company’s relatively modest record of charitable giving has drawn some unfavorable reviews, with the online magazine Slate this spring dubbing Amazon “The New Scrooge.”
But Spector said Amazon’s philanthropy issues don’t have an impact on the overall business.
“The average consumer, their only contact with Amazon.com is through the website,” he said. If a product “is at a good price and they get it on time and there’s nothing wrong with it, they move on.”
[Flickr photo via Phillie Casablanca]
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