In short, what's good for customers is good for shareholders.[1]
Topic map
- To our shareholders p.1–3[2]
Numbers
| Metric | Value |
|---|---|
| Inventory turns per year | 19 times[4] |
| Order cycle time improvement | 17%[5] |
| Contacts per order improvement | 13%[6] |
| U.S. electronics selection increase | over 40%[7] |
| U.S. electronics selection vs. typical big box store | 10 times[8] |
| U.S. books selection increase | 15%[9] |
| Apparel and Accessories brands | more than 500[10] |
| Shirts sold in first 60 days (Apparel store) | 153,000 shirts (first 60 days)[11] |
| Pants sold in first 60 days (Apparel store) | 106,000 pairs of pants (first 60 days)[12] |
| Underwear sold in first 60 days (Apparel store) | 31,000 pairs of underwear (first 60 days)[13] |
| American Customer Satisfaction Index score | 88[14] |
| ACSI score year-over-year improvement | up 5%[15] |
| Cost of 100 bestsellers at physical superstores | $1,561[16] |
| Cost of 100 bestsellers at Amazon.com | $1,195[17] |
| Savings on 100 bestsellers vs. physical superstores | $366, or 23%[18] |
| Net sales | $3.9 billion[19] |
| Net sales growth | 26%[20] |
| Unit sales growth | 34%[21] |
| Free cash flow | $135 million[22] |
| Free cash flow improvement over prior year | $305 million improvement[23] |
| Operating cash flow | $174 million[24] |
| Purchases of fixed assets | $39 million[25] |
| Operating cash flow (2001) | $120 million (2001)[26] |
| Purchases of fixed assets (2001) | $50 million (2001)[27] |
Notable quotes
People see that we're determined to offer both world-leading customer experience and the lowest possible prices, but to some this dual goal seems paradoxical if not downright quixotic.
We transform much of customer experience—such as unmatched selection, extensive product information, personalized recommendations, and other new software features—into largely a fixed expense.
Amazon.com continues to show remarkably high levels of customer satisfaction. With a score of 88 (up 5%), it is generating satisfaction at a level unheard of in the service industry... Can customer satisfaction for Amazon climb more? The latest ACSI data suggest that it is indeed possible. Both service and the value proposition offered by Amazon have increased at a steep rate.
Our pricing objective is not to discount a small number of products for a limited period of time, but to offer low prices everyday and apply them broadly across our entire product range.
Free cash flow—our most important financial measure—reached $135 million, a $305 million improvement over the prior year.
Given how much we've grown and how much the Internet has evolved, it's notable that the fundamentals of how we do business remain the same.
Lessons
- Eliminating defects improves costs and leads to better customer experience.[34]
Entities mentioned
Prior predictions revisited
- ✓ 2001: “we plan this year to generate positive operating cash flow, leading to free cash flow (the difference between the two is up to $75 million of planned capital expenditures)” — Amazon generated $174 million in operating cash flow and $135 million in free cash flow in 2002, confirming the prior prediction of positive operating and free cash flow.[35]
- ✓ 2001: “we believe Amazon.com is poised over the coming years to generate meaningful, sustained, free cash flow” — The 2002 letter reports $135 million in free cash flow, a $305 million improvement over the prior year, demonstrating meaningful free cash flow generation.[36]
vs. 2001
Added: Concrete price-comparison evidence vs. physical retailers[37] · New product category expansion (Apparel and Accessories)[38] · ACSI highest-ever service industry score[39] · Free Super Saver Shipping as a pricing action[40]
Dropped: Disciplined share dilution and stock option targets · Pro forma vs. GAAP earnings discussion · Transition from growth-only to balancing growth and profitability
Moved: Free cash flow as forward goal → Free cash flow as demonstrated result[41]
Anecdotes
- Bezos describes a price-comparison exercise: Amazon employees visited four physical book superstore locations in Seattle and New York City, spending six hours finding all 100 books on the chain's own 2002 bestseller list, and found Amazon was 23% cheaper overall.[42]
- Amazon's new Apparel and Accessories store launched with more than 500 top clothing brands; in its first 60 days customers bought 153,000 shirts, 106,000 pairs of pants, and 31,000 pairs of underwear.[43]