A lucrative if relatively unknown side business for Amazon.com is powering the online websites of other major retailers.
The partnerships began at the height of the dot-com boom ten years ago, when Amazon had established an early lead in e-commerce and bricks-and-mortar companies were looking for ways to sell their goods online.
Initially, some retailers opted to maintain “store fronts” on Amazon’s own site. Later, Amazon also provided fulfillment and website management services for some retailers’ new separate sites, including Target.com and the UK’s Marks & Spencer, through its enterprise services business.
Now Target has decided to end its relationship with Amazon. Target said Friday that it would not renew its contract with Amazon, and that it would establish its own online store by the 2011 holiday season.
While the two companies weren’t trading barbs publicly, Target wouldn’t be faulted for feeling jilted in the same way that Toys ‘R’ Us did. The relationship has seemed increasingly untenable in recent years, as Amazon has moved to sell more of its own general retail merchandise. This diversification has made Amazon the most visited online retail site in the US, after Wal-Mart and Target.com.
Target now will be faced with the complex task of building its own fully fledged e-commerce operation, although it already handles many aspects of the site, including page design, data analysis, and merchandising.
Amazon, on the other hand, is not likely to suffer much. RBC Capital Markets analyst Stephen Ju told The Wall Street Journal that sales from Target probably account for less than 1 per cent of Amazon’s yearly transaction volume.
The one previous time such an arrangement came into focus was in 2006, when Toys ‘R’ Us sued Amazon to sever an arrangement under which it sold its toys through a store front Amazon’s own site. The toys retailer claimed that Amazon had breached the terms of their 10-year deal by promoting rival toy retailers, including Target, on the site.
Toys ‘R’ Us won, and the partnership was ended prematurely, with Amazon eventually paying $51m in a court settlement. Borders, the book seller, ended a similar relationship with Amazon in 2007.
Amazon Services still runs websites for Bebe, the youth retailer, OshKosh B’Gosh, the children’s clothing company, Timex and Marks & Spencer. But Amazon has increasingly left the enterprise-level web services business to competitors such as GSI Commerce and DemandWare, while focusing its web-services and fulfillment efforts instead on an army of small sellers who provide it with a steady stream of revenue.
Additional reporting by Jonathan Birchall in New York
