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1 in 2010

In 2010,, Inc. recorded $34.2 billion dollars of sales. Despite incurring record sales and profits, Amazon CEO and president Jeff Bezos took home a salary of $81,840 for the year. Since founding the company in 1995, Time Magazines former Man of the Year has led Amazon to where it now sits: years ahead of any other online retailer, and at the top of a growing $183.1 billion American online retail market 1. Since its inception as an online bookseller, has grown at a tremendous rate and morphed from bookseller to online mass merchant. While it took Wal-Mart more than 25 years to reach $20 billion in sales, Amazon reached that plateau in only 15 years. Many observers wondered whether Amazon could continue this blistering pace as both conventional retailers like Wal-Mart and others, as well as specialized e-tailers like, caught up in online retailing and threatened various facets of Amazons marketplace. Retail/E-tail Evolution The global financial crisis (GFC) hit the bricks and mortar retail industry very hard. Yet, during this financial crisis, the online retail industry continued to expand. From 2008 to 2009, online retailing in the United States grew 11 percent. By 2014, Forrester Research forecasted online retail sales to reach around $249 billion. 2 When Amazon was founded in 1995, online retailing sales were a fraction of what they were in the 21st century. Online retail was a developing industry, which suffered from a lack of trust in online commerce, a scarce number of online customers, and an even scarcer number of online retail websites. In December 1995, there were 16 million Internet users across the world; by 2009 there were 1.6 billion. 3 In the early years of Amazons young life, the Internet was a new, and to most people, an unfamiliar utility. Forrester reported that, more than any demographic factor, the length of users online tenure accurately predicts the likelihood that they will shop online. 4 Because the Internet was a relatively new service, online users had short online tenures during Amazons early years. Users then had yet to establish an element of trust with online shopping. Accordingly, significant increases in traffic ensued as Amazon gained credibility in the media over the years (in 1996 alone, was featured in The Wall Street

This case was prepared by Matthew Nathan under the supervision of Lawrence J. Ring, Chancellor Professor of Business and EMBA Alumni Professor, as a basis for class discussion. It is not intended to illustrate either effective or ineffective management practice. Copyright 2011 by the authors and the Foundation Board of the Mason School of Business, the College of William and Mary.

2 Journal, Business Week, and the New Yorker. It was also named one of the 10 Best Web Sites of 1996 by Time Magazine 5). By 2001, one-half of United States residents had access to the Internet (through home, work and school 6). Further, 46 percent of the online population made online purchases (as opposed to 31 percent in 1999). By the new decade, Amazon had established itself at the center of a rapidly expanding online retail market. History launched its website with the aspiration of becoming Earths biggest bookstore; only years after its founding, exceeded Jeff Bezoss vision. By 2000, was the worlds largest online retailer, offering an array of SKUs and netting $2,756.8 million in revenues. To evolve from a startup company, shipping boxes of books from a two-car garage in Bellevue, WA 7, to the largest online retailer- and then far beyond- leadership implemented a strategy to, Get big fast. During its beginning years, Amazon Inc. maintained its policy of rapid expansion. However, despite its growth, it was not until the fourth quarter of 2001 that Amazon became profitable for the first time. 8 Nick Hanauer was an early investor (his $40,000 investment in was valued at $250 million in 2004; in 2004, Amazon stock was priced around $50) who was credited with persuading Jeff Bezos to move to Seattle in the summer of 1994. In a Seattle PI report, Hanuer claimed that, the reason [] didnt make money was that for the previous five years every time there was a trade-off between making money or growing faster, we grew faster. It wasn't that there weren't lots of opportunities to make money. It was just that we had consciously foregone those opportunities to reach scale and make it impossible to duplicate what we had done. And voila! 9 Initially, was exclusively an online book retailer with a selection of 1 million titles. Most of those titles were not kept in Amazon.coms warehouse in Seattle (which was only 50,000 square-feet); in general, ordered its books on an asneeded basis, only after receipt of a customer order. 10 In its early years, primarily used Ingram Book Company (60 percent of Amazons books were sold through Ingram in 1997 11) and Baker & Taylor to source its selection. 12 This method of procurement however, was more expensive than buying direct from publishers: Amazon typically received a 48 percent discount when buying from publishers and a 41 percent discount from wholesalers 13. From 1996 to 1999, rapidly expanded as a result of significant increases in traffic and sales. In November 1997, launched a fulfillment center in New Castle, Delaware. This strategically placed fulfillment center positioned Amazon closer to its East Coast customers and publishers, which enabled the company to decrease order fulfillment lead times and lessen its dependence on its main supplier Ingram. 14 After introducing the new fulfillment center and enlarging its Seattle warehouse by 70 percent, expanded its warehouse capacity by six fold; the company could then stock

3 about 300,000 titles, and therefore, buy most of its books directly from publishers. 15 With its new procurement strategy, Amazons inventory turns dramatically decreased from 70 in 1996, to 10.8 in 1999 16, and to 12 in 2009 17. By 1999, Amazon expanded its reach as it acquired Internet Movie Database, opened Music and DVD/Video stores, and launched its first international sites (In the UK and Germany: and, respectively). However, did not slow down. In 1999, rapidly expanded its operations by opening four fulfillment centers in Fernley, NV, Coffeyville, KS, and in Campbellsville and Lexington, KY. These distribution centers (which added 3.2 million square feet of distribution capabilities and cost Amazon $320 million) were strategically placed in regions that adhered to certain criteria: supplier and customer locations, freight rates, labor expenses, tax rates, employment levels and the availability of distribution facilities available to lease. 18 In 1999, Amazon also opened a customer service center in Tacoma, WA, and launched six new stores (customer electronics, toys & games, home improvement, software, video games and gift ideas). In the fourth quarter of 1999, Amazon shipped about 20 million items and acquired more than 2.5 million first-time customers. 19 By the end of its first five years, had acquired numerous Internet ventures, broadened its product line across abundant categories, involving millions of SKUs, and extended its distribution centers across six states and three countries. In 2000, expanded its reach to France and Japan. With the addition of and, Amazon Inc. then had four international websites. However, 2000 was not all about expansion. Two months after Jess Bezos was named Time Magazines, Person of the Year, reported a loss of $323 million during the fourth quarter. Following its peak stock price of $106.69 in December 1999, the companys stock spiraled downwards. By December 29, 2000 the stock price fell to $15.56. Many analysts believed that would never make it back to the top, and might run out of cash. In response to these predictions Amazon leadership stressed that it would still have $1 billion in cash by the end of 2000; to further placate critics, implemented several initiatives to streamline costs. 20 These initiatives included: improving inventory-record accuracy and holiday season efficiency, cutting inventory costs (by improving software and making sure to have the right products at the right place), and boosting customer revenues (by offering across-the-board discounts and free shipping incentives). In January of 2001, announced plans to cut 15 percent of its 8,500-employee work force. By the fourth quarter of 2001, Amazon had managed to cut $22 million, or 17 percent, from expenses associated with filling orders and became profitable for the first time. In 2002, reached a record of $3.9 billion in sales, representing an increase of 26 percent over 2001. 21 Hushing many critics, first made a profit in 2001. In the following year, Amazon launched (Canada), Amazon Web Services, and two new stores (office products and Apparel & Accessories). In 2003, Amazon opened an additional three stores (Gourmet Food, Health & Personal Care, and Sports & Outdoor), and after

4 opening another two stores in 2004 (Jewelry and Beauty), featured 16 different stores. In September of 2004, Amazon made an important investment in Limited, which would later become the basis for (China). In December, reported its busiest holiday season ever, and for the next five years, this trend continued. On December 12th, 2005, over 3.6 million items were ordered, as Amazon delivered a single-day record of 41 items per second. 22 In 2005, launched the Amazon Prime program, which offered unlimited free shipping for a flat fee of $69 annually. Since 2005, the Amazon Prime program expanded to its Japanese, French, British, and German websites. By 2006, Amazon began selling digital copies of CDs, DVDs and Books through the Amazon Unbox. The Unbox allowed users to download content to the computers and certain TiVo boxes. Amazon expanded the digital media market when the company established its Amazon MP3 store in September 2007. In November 2007, the company made the leap from selling others products to selling its own, as it introduced the Amazon Kindle. 23 The Kindle was an electronic book reader that enabled users to shop for, download and browse newspapers, magazines, blogs, and books. The original Kindle was released exclusively in the United States at a price of $399, and was sold out in the first five and a half hours- remaining out of stock for the next five months. The devise could hold 200 non-illustrated titles. The Kindle 2 came out on February 23, 2009. The Kindle 2 could hold about 1500 non-illustrated books. By July 8, 2009, the price of the Kindle 2 was reduced to $299, and on October 7, 2009, the price was reduced again, to $259. On October 19, 2009, the international version of the Kindle 2 was released for a price of $279. This version let users download new titles in over 100 countries. The Kindle 3 was announced on July 28, 2010, and was available in two versions: Kindle Wi-Fi (originally priced at $139), and the Kindle 3G+Wi-Fi (priced at $189). On August 25, 2010, Amazon announced that the Kindle 3 was the fastest-selling Kindle ever. 24 During the first four weeks of its availability, and sold more copies of the Kindle 3 than any other product offered. The success of the Kindle and Amazons expansion into various markets helped the company replace Merrill Lynch on the S&P 100 in December 2008. 25 The Kindle DX was announced on May 6, 2009. Priced at $489, this model was larger than the Kindle, and could support simple PDF files. In 2010, Amazon released the international version of the DX, and the Kindle DX Graphite. The Graphite, which cost $379, had a screen that was about one and a half times larger than the Kindle 3, and had 50 percent better contrast than the previous DX model. By 2009, had built up a 90 percent share of the American e-book market. 26 On Thursday, May 19, 2011, Amazon announced that its customers purchase more ebooks than print books. Jeff Bezos commented, We had high hopes that this would happen eventually, but we never imagined it would happen this quickly. Weve been selling print books for 15 years and Kindle books for less than four years. The e-book market significantly grew in 2011. The Association of American Publishers said that

5 while comparable paperback sales decreased 8 percent in March, 2011, e-Book sales increased by 146 percent. In April, 2011, Amazon introduced a Kindle with ads, which was sold for $114; this version became Amazons best-selling Kindle. 27 The Kindles success was attributed to its innovative design, which included a unique high-resolution active matrix electrophoretic display, and the low prices: most new releases and best sellers were sold at a heavily discounted price of $9.99. After being asked in an interview whether the Kindle can work and grow into a $1 billion business, Jeff Bezos replied saying, Well, there are a lot of people who read. 28 Figure 1 presents a timeline of significant events in the life of Figure 2 is a list of significant acquisitions made by Amazon over the years. Amazons Values and Philosophy Amazon.coms vision was to be earths most customer centric company; to build a place where people can come to find and discover anything they might want to buy online. By 2010, this customer centric philosophy enabled Jeff Bezos and his management team to achieve a loyal base of over 121 million customers and 2 million active sellers. 29 Amazon.coms focus on the consumer began with an emphasis on selection, price, and convenience: We design our websites to enable millions of unique products to be sold by us and by third parties across dozens of product categories We strive to offer customers the lowest prices possible through low everyday product pricing and free shipping offers We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer service. 30 In his 1997 annual shareholders letter, Jeff Bezos emphasized Amazons obsession to its customers and claimed that repeat purchases and word of mouth made the market leader in online bookselling. Bezos displayed the importance of this customer centric mentality by including the 1997 shareholders letter in every annual report since. listed the following core values on its website Customer Obsession: We start with the customer and work backwards. Innovation: If you don't listen to your customers you will fail. But if you only listen to your customers you will also fail. Bias for Action: We live in a time of unheralded revolution and insurmountable opportunity--provided we make every minute count. Ownership: Ownership matters when you're building a great company. Owners think long-term, plead passionately for their projects and ideas, and are empowered to respectfully challenge decisions. High Hiring Bar: When making a hiring decision we ask ourselves: "Will I admire this person? Will I learn from this person? Is this person a superstar?"

6 Frugality: We spend money on things that really matter and believe that frugality breeds resourcefulness, self-sufficiency, and invention! The structure of was hierarchical/functional with key executives: Jeffrey P. BezosPresident, Chief Executive Officer, and Chairman of the Board Jeffrey M. BlackburnSenior Vice President, Business Development Sebastian J. GunninghamSenior Vice President, Seller Services Andrew R. JassySenior Vice President, Web Services Steven KesselSenior Vice President, Worldwide Digital Media Marc A. OnettoSenior Vice President, Worldwide Operations Diego PiacentiniSenior Vice President, International Retail Shelley L. ReynoldsVice President, Worldwide Controller, and Principal Accounting Officer Thomas J. SzkutakSenior Vice President and Chief Financial Officer H. Brian ValentineSenior Vice President, Ecommerce Platform Jeffrey A. WilkeSenior Vice President, North America Retail L. Michelle WilsonSenior Vice President, General Counsel, and Secretary Management Style and Climate When Amazon opened for business on July 16, 1995, books were packed on a table made out of an extra door they found lying in the new home. 31 Even with its expansion, Amazon management continued this trend of frugality. Amazons physical operations in Seattle were decidedly Spartan: the corporate headquarters were located in a lower-rent downtown district, office space was cramped, and desks, including Bezos, tended to be unfinished doors with 4-by-4s for legs. Bezos liked to say that Amazon Inc. skimped on everything but people and computers. 32 In an interview with Business Week, Jeff Bezos claimed that, frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out. 33 Bezos continued to describe his companys innovation when it came to acquiring new customers without money to spend on ads. This dilemma was solved by the inventions of the associates program and one-click shopping: Those things didn't require big budgets. They required thoughtfulness and focus on the customer. 34 In the workspace, innovation was highly encouraged. In fact, employees who pioneered designs without their bosss permission were rewarded with a Just Do It accolade. Jeff Bezos expected innovation out of all of his employees: People here like to invent, and as a result other people who like to invent are attracted here, and people who dont like to invent are uncomfortable here. So its self-reinforcing. With perplexing interview questions and rigorous background checks (which emphasized SAT scores and college grades) in the late 1990s, Amazon was infamous for the hiring processes of these creative employees. From 2000 to 2009, more than tripled its workforce

7 (from 7,600, to 24,300), expanded into three additional countries, announced four additional customer service centers, an added software development center, and eight new fulfillment centers. With rapidly growing workplaces, the working climate associated with became less standard. In some of the workplaces Jeff Bezos encountered many setbacks. In England, for example, a reporter went undercover at a fulfillment center. She found that around Christmas time, workers were unable to take sick leave, worked a compulsory 10.5 hour overnight shift at the end of a five day week, and were required to walk up to 14 miles during each shift to collect items for packing. 35 In 2009, a former employee of a Nevada distribution center sued saying, [] shorts as many as 21,000 warehouse workers nationwide on overtime pay. 36 In 2003, the Fortune Magazine reported that 20 of Amazons 50 top executives left between 2001 and 2003. 37 These problems notwithstanding, from top to bottom of Amazon.coms hierarchy, -no matter the country of residence- employees were expected to work hard on the behalf of their customers. Furthermore, employees were expected to provide ownership in all their projects. For example, in 2006, Werner Vogels, the VP of worldwide architecture and chief technician officer at, explained that development teams were responsible for the testing, ongoing maintenance and upgrading of any given web service 38: you build it; you own it. Pentagon Components Place: Layout and design: immediately differentiated itself from Barnes and Noble (and other bricks and mortar book retailers) because, while Barnes and Noble shoppers were restricted to store hours, users could shop whenever, or wherever they pleased. In order to differentiate itself further, offered numerous services that its competitors did not. was personalized to its customers. After signing in, the website offered the following options: More items to consider, Related to items youve viewed, Inspired by your shopping trends, More top picks for you, New for you, and Recommended for you. Since its inception, strived to create a virtual storefront tailored to its customers. Another service that provided was the convenience of information. Unlike any of its competitors, provided its book customers with interviews of the authors, book reviews, and recommendations from other customers and critics. In 2009 alone, approximately 7 million product reviews were added to Amazon websites. 39 As expanded into more retail categories such as electronics, customers gained information unobtainable in Best Buy or Wal-Mart stores, including easy to access technical and product details, product descriptions,

8 consumer blogs about a given item, and the complementing or similar products customers purchased. Compared to, had a simple color scheme that was less graphically rich. With limited graphic content, the website was quicker and simpler for its customers to navigate. improved the ease of use for its customers with the One-Click checkout. However, no matter how quick and personalized the website was, had a constant battle against the stigma of online credit card purchases. As indicated on, Amazon took a number of steps in order to ensure that safety and security of its customers. These measures included a number of technological protections, and steps to help ensure that sellers were of the highest quality. 40 When it came to protecting users information, encrypted every credit card number inputted into its system. Furthermore, Amazon let users encrypt any piece of information they entered (including their address, name, and gender). In order to implement this process, Amazon used Netscape Secure Commerce Server. This server stored all credit card numbers in a non Internet-accessible database- in order to prevent any possible entry point for hackers. also allowed users to enter a partial credit card number online, while providing the rest of the number over the phone. 41 Despite these measures, however, reported a flaw in Amazons password protection. was accepting extra characters (past the 8th character of a password), and also made passwords case-insensitive. For example, if your password was Password, also let you log in with PASSWORD, password, passwordpassword, and password12345. 42 Product (selection): Net sales in 2010 ($34.20 billion, see Exhibit 1, 2, and 3 for the Amazon Income Statement, Balance Sheet, and Cash Flow Statement) where distributed as follows 43: North America Media Electronics and other general merchandise Other Total North America International Media Electronics and other general merchandise Other Total International Assortment: (in millions) $6,881 $10,998 $828 $18,707 (in millions) $8,007 $7,365 $125 $15,497

9 Amazon offered millions of SKUs in product categories including books, music, CDs, DVDs, software, electronics, kitchen items, tools, lawn and garden items, toys & games, baby products, apparel, sporting goods, gourmet food, jewelry, watches, health and personal-care items, cosmetics, musical instruments, clothing, industrial & scientific supplies, and groceries. Of these products, the highest selling item was the Kindle. The Kindle 3, which was released July 28, 2010, surpassed Harry Potter and the Deathly Hallow as Amazons best-selling product of all time. By 2010, was selling more Kindle books than paperback books: for every 100 paperback books Amazon has sold, the Company has sold 115 Kindle books 44. By late January 2011, Kindle Store offered more than 810,000 books. Amazon Advantage Amazon Advantage was a system with which users could sell their media products on an marketplace. In return for an annual fee of $29.95, and 55-45 percent split of the list price ( receiving 55 percent), Amazon offered means of distribution, fulfillment, and access to their expansive customer base. 45 AWS In 2003, an senior management team decided to pursue what would become Amazon Web Services: To run, we had to build good services very deep in the software stack! Things like data storage, computing, database functionality, and messaging. We learned a lot of lessons, made a lot of improvements, and were forced to do things at a significant scale and level of reliability. In many ways, we had been working on the foundation of AWS since Amazons inception but didnt really know it. 46 In 2006, Amazon launched AWS. Amazon Web Services offer an array of products and tools in: Computing, Content Delivery, Database, Deployment & Management, ECommerce, Industry-specific Clouds, Messaging, Monitoring, Networking, Payments & Billing, Storage, Support, Web Traffic, and Workforce. All of AWS services can be used independently or deployed together to create a complete computing platform in the cloud. 47 In order to jumpstart AWS, Amazon Inc. utilized a grassroots marketing campaign with the use of online blogs, information sessions and the AWS Start-up Challenge (a contest where start-ups were asked to submit a business plan utilizing AWS; over 900 entries were received and the winner collected $50,000 in cash, $50,000 in AWS credits, and an investment offer from Amazon.) 48 By October 2008, AWS serviced 290,000 customers and generated an estimated $46 to $92 million annually. 49 Value (price)


Amazon In every years shareholders letter and annual report, stressed the importance of maintaining ever-lower prices. Competitive pricing was mandatory in an online market where a competitor was just a click away. Pricing: List Prices 50 for Amazon were described by the company as follows: Except where noted otherwise, the List Price displayed for products on our website represents the full retail price listed on the product itself, suggested by the manufacturer or supplier, or estimated in accordance with standard industry practice. The List Price is a comparative price estimate and may or may not represent the prevailing price in every area on any particular day. For certain items that are offered as a set, the List Price may represent "open-stock" prices, which means the aggregate of the manufacturer's estimated or suggested retail price for each of the items included in the set. Where an item is offered for sale by one of our merchants, the List Price may be provided by the merchant. Pre-Orders 51 Not-yet-released items would sometimes change price on When preordering a Book, CD, video, DVD, videogame, or software item, Amazon would give its customers the lowest offered price by, between the time you place your order and the release date. Price Matching 52 With the exception of TVs, did not offer a price-matching program with other retailers. If a customer found a lower TV price on another qualified website within 14 days of shipment, Amazon would credit the difference in price. Further, if Amazon itself lowered prices within 14 days of the shipment date, the company would refund the difference as well. Bulk Discounts and Surcharges 53 Amazon did not offer any additional discounts on titles. There were a couple of instances when Amazon would pass extra charges to its customers. The first was with oversized and extremely heavy items. The second was a sourcing fee to cover the expenses of selling certain items. With both of these instances, readily displayed the surcharges to its customers. AWS The pricing model for Amazon Web Services was aggressive. With Amazon Web

11 Services, you pay for what you use. While most other competitors offered a subscription fee, AWS did not impose an upfront fee and its pricing was exclusively based on a payper-use pricing model. For example, some AWS customers had monthly bills of less than $1. In 2011, Amazon Web Services announced lowered usage pricing on existing Premium Support offerings by 50 percent and added two new support plans to meet the needs of developers and enterprises of all sizes and technical ability. In addition to the existing Silver and Gold support plans, AWS offered a Bronze support plan for $49 per month and a Platinum support plan that provided 15 minute response times and dedicated Technical Account. 54 Even with Amazons customer centric pricing packages, Forbes reporter, Quentin Hardy, estimated that AWS could have a high gross margin of around 45percent. 55 Shipping Beyond maintaining low prices on products, Amazon offered free-shipping incentives. In 2009, incurred $1,773 million on shipping costs, and received shipping revenue of $924 million, thereby netting an $849 million loss. Omitting some restrictions, offered free shipping on orders exceeding $25 dollars. Despite the significant net loss sustained [] view[ed] free shipping offers and Amazon Prime as effective worldwide marketing tools, and intended to continue offering them indefinitely. 56 Communication: In 2008, incurred costs of $660 million for marketing and other promotional costs. Because was often a winner in the four other elements of the Pentagon, it was easy for Amazon to advertise its attractive qualities. Amazons marketing strategy, consist[ed] primarily of online advertising, including through our Associates program, sponsored search, portal advertising, and other initiatives. 57 With the Associates Program, paid outside websites a commission (of typically five to eight percent of each sale) for each referral to By mid-1997, thousands of Associates were already enlisted. Amazon reportedly derives about 40 percent of its sales from Amazon Associates and third-party sellers who sell products on Amazon. The company claims that it has over 900,000 members in its affiliate program worldwide. 58 This method of advertising presented with a low cost method of spreading its name. In total, spent relatively little in advertising compared to its competitors. Wal-Mart, for example, incurred advertising expenses of $2.4 billion in 2010 (2010 annual report). However, as a percentage of sales, Amazon spent 2 percent on advertising, while Wal-Mart only spent .6 percent. Instead of shelling out big bucks for lavish trade shows and TV and magazine ads, Amazon pours money into technology for its Web site, distribution capability, and good deals on shipping. 59 In 2009, rather than

12 hiring an ad agency, offered filmmakers a $10,000 gift card for producing the best commercial (which would be used in a national TV campaign). In recent years, Amazons frugal marketing mentality seemed to shift. In 2008, Amazon incurred marketing expenses of $482 million. Costs rose to $680 million in 2009, and $1,029 million in 2010. 60 A part of these increased expenses came from marketing efforts with the Kindle. According to Nielsen, media spending behind the Kindle jumped from about $18 million in 2009, to more than $82 million in 2010. 61 As more competitors expand into online retail, Amazon may feel rising pressure to increase its marketing expenses. When Amazon increased its marketing expenses, its customers could observe the companys efforts through advertisements. However, the majority of Amazons costs come from behind the scenes operating expenses, which will be discussed in the Triangle Components sections. TRIANGLE COMPONENTS Systems Since 1997, experienced explosive growth that mandated the constant update of sophisticated operational systems. In Amazons early years, Jeff Bezos devoted abundant resources towards the restructuring of systems, and specifically towards backoffice operations (in a 1997 Business Week article, Bezos said that back-office logistics encompassed 80 percent of the company's investment in software development since its founding in 1994 62). Amazons tremendous technological core was run entirely by Linux; in 2005, owned the worlds three largest Linux-based databases- with a total capacity of 7.8 terabytes, 18.5 TB, and 24.7 TB. 63 At a LinuxWorld Conference and Expo in 2003, Amazon Vice President of Infrastructure, Tom Killalea described the extent to which used a Linux platform. Killalea mentioned that Amazon used a message-based system in which one server, such as a machine that just logged a customer order, sent messages to other machines, such as those that take care of billing or shipping. In 2003, Amazon had nine worldwide distribution centers with a total of 4.2 million square feet, and Everything that happens in them is driven by Linux. 64 Every day imported copious information from fulfillment centers, supply chains, and web servers. Receiving these data was Amazons central data warehouse, made up of 28 Hewlett Packard servers with four CPUs per node. 65 Amazons data warehouse was divided into three functions: query, historical data and extract, transform, and load (ETL) 66. In the 2003 holiday season, processed a top-end 1 million shipments and 20 million inventory updates in one day 67. Every order and update was coded and directed through a series of channels, all of which were consolidated through Amazons immense central data warehouse (see figure 3). Improving operational systems helped increase efficiency and reduce costs. By migrating to a Linux-based platform in 2000, reported to the Securities

13 and Exchange Commission that it cut technology expenses by about 25 percent, from $71 million to $54 million. 68 Logistics In 1997, Jeff Bezos said: The logistics of distribution are the iceberg below the waterline of online bookselling. In the beginning years of, its logistics were relatively simple. For example, when Amazons only warehouse was a 50,000 square foot facility in Seattle, offered 2.5 million titles, yet stocked only 2,000 books 69. Amazon purchased books from wholesalers (primarily Ingram Book Company and Baker & Taylor) only after a customer had placed an order; wholesalers would ship the order to Amazons distribution center, where the items would be repackaged and sent to the customer. The advantage to this procurement system was decreased inventory holding periods and increased inventory turns. 70 After rapid expansion, Amazons distribution center capacity grew tremendously, by increasing its stock of books, was able to reduce shipment times, and order predominantly from publishers (who gave more significant discounts than wholesalers). As Amazon extended its distribution centers to six states across the United States, the company had to decide the allocation of products. 71 When opening new stores such as Toys & Games and Home Improvement, items became much less standard. While books were often the same size and experienced similar regional demand across the country, items such as inflatable outdoor pools were larger and more popular in warmer regions; as opposed to books, pools also had strong seasonal demand. officials decided that new distribution centers would carry an array of items instead of specializing. In an interview with the Director of European Supply Chain Operations, Tom Taylor mentioned: The decision that distribution centers should carry a mix of products was based on transportation cost, time to deliver to consumers, and the cost of dealing with multi-item orders. All distribution centers carry all type of product categories, apart from the Delaware distribution center, which could not handle large sized products like toys. And, since Lexington and Campbellsville are not far from each other, we decided to put the smaller sized items in Campbellsville and the larger ones in Lexington. This made sense, since larger sized items are never shipped with smaller sized items. For example, a barbecue grill and a CD will always be sent to the customer in two separate shipments. 72 Distribution centers had a calculated system of arrangement. This system consisted of numerous innovative strategies that improved Amazons ability to efficiently and costeffectively sort and ship products. Each distribution center was equipped with a pick-tolight system (lights were illuminated to show workers which items to pick next and how many to pick), radio-frequency technology (which directed workers across the warehouses via a handheld terminal), voice technology (which allowed computers to communicate instructions to workers), and pick profiles. Pick profiles used various patterns in order to determine pick lists for employees. These lists contained

14 approximately 100 items that were located in the same area of a distribution center. Once retrieved, these items were placed in bins, which would be filed and sent to packaging. 73 By 2001, Amazons distribution center processes changed in order to optimize efficiency and decrease costs. One important change involved reforming the holiday season logistics. Because of the disproportionate demand that incurred during the fourth quarters, Amazon temporarily enlarged supply capabilities. The process of increasing supply capabilities during the holiday season included hiring additional employees, increasing stock, and leasing warehouses (for example, during the 2001 holiday season, leased six off-site facilities totaling 1.1 million square feet of additional space 74). In order to forecast the demand would experience, the company used specialized software. Cayce Roy, Vice President of US Fulfillment, noted that in 2002, Amazon Inc., rewrote much of the software so that we could pinpoint demand in different regions. Accurate forecasts meant a reduced risk of buying too much or too little merchandise. Furthermore, this software helped predict the extent to which it required temporary holiday leasing and employees. In 2009, reported over 2 billion dollars in fulfillment expenses. By improving logistics, strived to reduce its margins, which, in turn enabled Amazon to lower prices, and increase sales. In 2002, Amazon cut 17 percent of its fulfillment costs by: Revamping the layout of its five warehouses, making it easier for the company to locate, sort and ship customer orders. Refining the software it used to estimate customer demand, reducing the risk of buying too much or too little merchandise. Partnering with other companies to avoid handling inventory; the partners shipped some items, and Amazon capitalized on its e-commerce expertise. Partnering with other companies, handling inventory and shipping duties in exchange for fees and a percentage of sales, while the partner covered the cost of the inventory. 75 Cutting costs and boosting margins allowed Amazon to pass its pass along savings to customers, and ultimately gain a competitive edge over other e-tail stores. Suppliers Amazons advanced foresight software allowed the company to bypass distributers and order directly from publishers and producers. By accurately understanding the orders would observe in the future, management was able to order merchandise to sustain product demand. Through this strategy, avoided the extraneous costs of distributers, while coping with the slow fulfillment that publishers and producers cause. In its 2010 annual report, stated, On average, our high inventory velocity means we generally collect from our customers before our payments to suppliers come due. 76


During 2009, no vendor accounted for 10 percent or more of our inventory purchases. We generally do not have long-term contracts or arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits. 77 Competition: AWS: Amazon had several advantages over its big time competitors including: Network Appliance, Inc., EMC Corporation, IBM, HP, Sun and Dell Computer Corporation and Microsoft. Principally, Its cloud computing engineers did not have to satisfy requirements of large customers, so they were free to make decisions that emphasized new technology and low costs, says Marten Mickos, CEO of software company Eucalyptus Systems and a former executive at MySQL and Sun Microsystems. ( In 2011, was frequently in the news because of lawsuits involving sales taxes. Since began selling goods online, it had been able to avoid paying sales taxes in accordance to a 1992 U.S. Supreme Court ruling stating that merchants only have to collect sales tax if they are present in a given state (in early 2011, the only states that Amazon Inc. had to pay sales taxes for were: Kansas, Kentucky, New York, North Dakota, and Washington State). Some of Americas largest retailers including Wal-Mart, Best Buy, Sears Holdings Corporation, Home Depot, and Target, zealously lobbied in favor of lawsuits that would push to pay hefty sales tax compensations. These companies allied under the Alliance for Main Street Fairness, which as Danny Diaz, the spokesman for the Alliance said, was not limited to large companies. Both small and large retail companies across America felt increasing pressure from the low prices and expansive selection that offered. As branched into various product categories, they have also expanded their competition. Although led Internet retailers, (with sales of $34 million), the company also competed with Target (which, in 2010 netted $65 billion) and Wal-Mart ($408 billion), and specialized larger retailers like Best Buy ($50 billion), Office Depot and Office Max (together, amount to $29.2 billion). In 2010, Wal-Mart online sales were a fraction of Amazon.coms: $3.5 billion vs. $34.2 billion, respectively. However, in total business, Wal-Mart was 15 times larger than Amazon. In a 2011 William Blair report, analyst Mark Miller claimed that when comparing 20 general merchandise categories with roughly 480 items across Target, Wal-Mart, and, offered 78 times the assortment of the brick-and mortar stores. Mark Miller found that if the Amazon sales tax advantage went away, Amazon Prime members would pay, a modest premium to Wal-Mart store prices and about the

16 same prices as Target customers. 78 However, as reported, prices were generally lower than those at and Due to its immense assets, Wal-Mart possessed tremendous capability to match or beat Amazons discount prices. In 2009, Amazon Inc. and Wal-Mart Stores Inc. began a staunch price war. On October 8th, Wal-Mart announced that it would sell 10 new hardcover books for $10 apiece through Soon after matched the $10 price, further dropped the prices to $9. 79 In an interview, Raul Vazquez, the CEO of, stated that, If there is going to be a Wal-Mart of the Web, it is going to be He continued, Our goal is to be the biggest and most visited retail website. Retailers typically pay half the list price for hardcover books. Accordingly, as Wal-Mart and Amazon sold Stephen Kings, Under the Dome, at $10, they were giving a 71 percent discount from the $35 cover price. This suggested that and were losing up to $7.50 on every copy it sold. 80 Such a loss would be impossible for small retailers to afford. How could a small retailer survive in the brashly competitive pricing war between and Wal-Mart? Further, how could a small retailer begin to offer the selection that these companies offered? One way that smaller companies began to compete was through specialization. With a specialized realm of products, websites such as,,,, and offered competitive pricing and selection that could compete with the retail giants. However, these five specialized websites also shared another quality: either Amazon Inc. or WalMart Inc. purchased every one of them. Wal-Mart and Amazon felt increasing pressure from these smaller specialized companies who offered discounted pricing on a narrow section of online retail. In an interview with Business Week, Jordan Rohan, an analyst for Stifel Nicolaus said: An intense focus on a category enables efficiencies that even Amazon would have trouble replicating. You can optimize your business. I think specialization with scale is going to be the central theme for e-commerce for this decade. 81 In its first month, was making $1.8 million in revenue. By 2010, the parent company, Quidsi (who also owned was expected to generate $300 million: Specialization worked for companies like Quidsi and Zappos because they build relationships with recurring customers, and because they can get their product out quickly. 82 Marc Lore, the CEO of Quidsi said that in order to reduce shipment time, and moved their warehouses into urban areas. This was made possible because on these websites, customers ordered from a small and predictable range; with millions of SKUs, would have trouble urbanizing its merchandise. On November 8, 2010, announced the acquisition of Quidsi for $500 million in cash and the assumption of $45 million in debt and other obligations. 83 This purchase echoed Amazons July, 2009 acquisition of for close to $1 billion. In recent years, Amazon handled competition from smaller specialized companies by simply buying them out. From 1998-2010, made full acquisitions of 25 companies, and invested in 37 (see acquisitions).

17 Outlook 2011 and Beyond: When Amazon opened its business on July 16, 1995, it was nothing more than a few people packing and shipping boxes of books from a two-car garage in Bellevue, Washington. 84 Since 1995, had a tremendous run, reaching $35 billion in sales in only 16 years. Despite skepticism, its growth did not stop there: by 2011, serviced over 30 product categories, and had 33,700 full time employees working for Amazon websites in seven countries. For Amazon, the sky is the limit. However, some wondered to what level Amazon would continue its outstanding growth? In a 1997 interview with The Economist, Jeff Bezos claimed that, Ultimately, were an information broker. On the left side we have lots of products; on the right side we have lots of customers. Were in the middle making the connections. By the 21st century, had successfully made these connections in order to establish itself at the center of a rapidly expanding online retail market. In 2009, the United States online retail market totaled $129.8 billion- 37.2 percent of the global online retail market. From 20102015 the United States and European online retail markets are expected to grow at 10 percent compound annual growth, reaching $279 billion and $189 billion, respectively, in 2015. In order to stay on top of this increasingly large market, will need to combat the two major challenges facing it in 2011, growing competition, and sales tax lawsuits. Competition and Lawsuits With the onset of growing competitive challenges, significant questions arise: Will Amazon.coms best selling product, the Kindle, be overtaken by the iPad, Galaxy Tab, and other up and coming tablets? In 2011, over 28 million iPads were expected to be sold. 85 Even though the Kindle did not offer many of the features of these tablets, the Kindle was able to differentiate itself with a price drop of around $400. Will cheaper ereaders such as the Nook and Sony Book Reader, overtake the Kindle? The Nook and Sony Reader were within the price range of the Kindle, but also offered a color screen, and touch screen, respectively. Further questions arose in regards to Wal-Mart and other large retailers: Would Wal-Mart and other large retailers be able to use their vast assets in order to establish themselves in the growing online retail market? Exhibits 4, 5, and 6 present recent financial statements for Wal-Mart. Will these large retailers be able to catch up quickly now that Amazon has paved the way for online retail? In 2010 ranked as the 35th largest global retailer. With the success that has achieved, it would not be surprising if retailers larger than Amazon become more invested in the online market. Although Amazon continued to innovate rapidly, the foundations of online retail have been set. The future of Amazon was far from secure. It was expected that smaller, specialized retailers would continue to flood into the market. Although had dealt with these kinds of companies by simply buying them out, many wondered how long that strategy could continue. Some of these acquisitions, which often total several hundred million dollars, will inevitably not come to fruition. During the first quarter of 2009 announced that the value of its investments

18 in private companies fell from $247 million to $89 million. 86 Although there is tremendous potential for acquisitions such as Lovefilm International (which allows to compete with, they can easily become busts. For years, states have fought to force the company into paying sales tax. In 2010, collected sales tax in the five states where it had the physical presence of offices or distribution centers: Kansas, Kentucky, New York, North Dakota and Washington. In order to combat these lawsuits, Amazon threatened to remove its operations from various states. On April 28, 2011, after South Carolina representatives rejected a tax break, Amazon officials stated that the company would be canceling plans to open a distribution center there that would bring 1,249 jobs: As a result of todays unfortunately House vote, weve canceled $52 million in procurement contracts and removed all South Carolina fulfillment center job postings. 87 Will the events in South Carolina scare other states into dropping lawsuits? A report by William Blair in March 2011, stated that if lost its sales tax advantage, Amazon Prime members would pay, a modest premium to Wal-Mart store prices and about the same prices as Target. If the lawsuits ended up passing, it would be more difficult for Amazon to maintain its success in online retail? Although Amazon faced many challenges in the future, the company also had a great deal going for it. Amazons pet products, the Kindle and Amazon Web Services had a great deal of momentum. In 2010, the Kindle held a 60 percent share of the US e-reader market. 88 In a February report, Goldman Sachs said that 77 percent of companies it surveyed using cloud computing development tools were using Amazon's Elastic Compute Cloud service. About 17 percent were using software from Google and, and 10 percent chose Microsoft's Windows Azure. Amazon has been running the table, says Tim O'Brien, senior director of platform strategy at Microsoft. 89 Some analysts believed that Amazons future success could hinge on the name it has created for itself. Because of its long-established position at the top of the online retail market, Amazons name was synonymous with cheap and reliable online retail. Even as more companies ventured into the market, can rely on its name. According to a Judith Chevalier study, the price elasticity of demand facing was -3.5, compared with -0.45 for 90 While compared prices for were 10-15% lower during this study, Amazon.coms inelastic price elasticity of demand demonstrated the loyalty of its customers and the value of its name. Every years annual report for Amazon Inc. included Jeff Bezos 1997 Letter to Investors. This letter outlined the fundamentals that the company still followed in 2011: relentless focus on its customers and the long run, expansion, sound investment strategies, frugality, and emphasis on the hiring process. Although the future of is not certain, Jeff Bezos has fortified Amazon into a position where it can confidently confront its challenges.

19 Figure 1: Timeline of Events 1995 1996 1997 1998 1999 2000 2001 2002 2003 MaySeptemberNovemberJanuaryAprilMayNovemberMayAugustOctoberJuneJulySeptemberNovemberAprilSeptemberNovemberDecember-

July- sells its first book

Over the course of 1996, records $15.7 million in sales announces IPO and begins trading on NASDAQ Introduces 1-Click Shopping opens fulfillment center in New Castle, Delaware acquires Internet Movie Database opens Music Store launches international websites: (UK) and (Germany) Opens fulfillment center in Fernley, Nevada Opens fulfillment center in Coffeyville, Kansas Opens Fulfillment centers in Campbellsville and Lexington, Kentucky Home Improvement, Software, Videogames and Gift Ideas stores opens Kitchen store opens forms partnership with Toys R Us launches international website: (France) opens Camera & Photo store forms partnership with Borders Group September- forms partnership with Target Stores International sales grows 74% to reach $661 million (21% of total sales- pg 8 intl) launches international website: (Canada) starts AWS (Amazon Web Services) Office Products store opens Apparel & Accessories store opens establishes partnership with the National Basketball Association Sports & Outdoor store opens Gourmet Food store opens Health & Personal Care store opens


2004 2005 2006 2007 2008 2009 2010

AprilJewelry store opens establishes partnership with the Bombay Company By the end of 2004, accumulated a revenue of $4,874 million (44% of which came from outside of the United States) establishes partnership with Diane Von Furstenberg FebruaryAmazon Prime reaches a fulfillment agreement with announces that during the Holiday Season, customers ordered over 108 million AprilCustomFlix establishes partnership with Timex, Benefit Cosmetics, and Toy and Baby stores open Grocery story opens announces that its fourth quarter sales up 34% launches MarchClassical Music Blowout store opens opens fulfillment center in Munster, Indiana announces that its fourth quarter sales are up 42% to $5.7 Billion JuneOffice Supplies store opens opens fulfillment center in Goodyear, AZ September- Motorcycle & ATV and Election 2008 stores open announces that its fourth quarter sales are up 28% to $6.7 Billion JulyOutdoor Recreation Store opens announces that its fourth quarter sales are up 42% to $9.5 Billion JuneWheels store opens Opens (Italy)


Figure 2: acquisitions Acquisitions: 1998: Internet Movie Database 1999: Alexa Internet Tool Crib of the Norths online and catalog sales division Alexa Internet Leep Technology Inc. 2004: Limited 2005: BookSurg LLC CustomFlix Labs, Inc. 2006: 2007: Digital Photography Review Brilliance Audio, Inc. 2008: Abe Books- which had already aquired Justbooks, Iberlibro, Bookfinder, Fillz, Librarything (40% stake), and Chrislands Box Office Mojo Shelfari Reflexive Entertainment 2009: Lexcycle Inc. Snaptell Inc. 2010: Investments (by date announced): 1998: Sage Enterprises Junglee Corporation 1999: Geoworks (minority interest) (54 percent stake paid in case and stock) (purchased by in 2000) Convergence Corporation Mindcorps Incorporated (minority interest) Basics Toys (sold to Scholastic in 2003)

22 2000: Greg Manning Basis Technology 2001: 2002: CDnow 2005: Booksurge 2006: Wikia 2007: Amie Street 2008: Lovefilm International Animoto Engine Yard Inc. Elastra Corp 2009: Yieldex Book tour Foodista Talk Market Inc.


Figure 3, Amazons Data Warehouse


Exhibit 1, Income Statement Income Statement Period Ending Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses 6,237,000 4,402,000 3,428,000 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008 34,204,000 26,561,000 7,643,000 24,509,000 18,978,000 5,531,000 19,166,000 14,896,000 4,270,000

Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations




130,000 1,536,000 39,000 1,497,000 352,000 1,152,000

66,000 1,195,000 34,000 1,161,000 253,000 902,000

130,000 972,000 71,000 901,000 247,000 645,000

25 Extraordinary Items Effect Of Accounting Changes Other Items -

Net Income Preferred Stock And Other Adjustments

1,152,000 -

902,000 902,000

645,000 645,000

Net Income Applicable To Common Shares 1,152,000 Currency in USD.

26 Exhibit 2, Balance Sheet Period Ending Assets Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities 10,372,000 10,372,000 1,561,000 7,364,000 7,364,000 1,192,000 4,687,000 59,000 4,746,000 533,000 363,000 3,777,000 4,985,000 1,783,000 3,202,000 13,747,000 2,414,000 1,349,000 1,265,000 22,000 18,797,000 3,444,000 2,922,000 1,260,000 2,171,000 9,797,000 1,290,000 1,234,000 1,474,000 18,000 13,813,000 2,769,000 958,000 1,031,000 1,399,000 6,157,000 854,000 438,000 160,000 560,000 145,000 8,314,000 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008

27 Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets Currency in USD. 5,000 1,324,000 (600,000) 6,325,000 (190,000) 6,864,000 5,515,000 5,000 172,000 (600,000) 5,736,000 (56,000) 5,257,000 4,023,000 4,000 (730,000) (600,000) 4,121,000 (123,000) 2,672,000 2,074,000 11,933,000 8,556,000 5,642,000

28 Exhibit 3, Cash Flow Period Ending Net Income Dec 31, 2010 Dec 31, 2009 Dec 31, 2008 1,152,000 902,000 645,000

Operating Activities, Cash Flows Provided By or Used In Depreciation Adjustments To Net Income Changes In Accounts Receivables Changes In Liabilities Changes In Inventories Changes In Other Operating Activities Total Cash Flow From Operating Activities 568,000 88,000 (295,000) 2,895,000 (1,019,000) 106,000 3,495,000 378,000 298,000 (481,000) 2,624,000 (531,000) 103,000 3,293,000 287,000 51,000 (218,000) 1,164,000 (232,000) 1,697,000

Investing Activities, Cash Flows Provided By or Used In Capital Expenditures Investments Other Cash flows from Investing Activities Total Cash Flows From Investing Activities (979,000) (2,029,000) (352,000) (3,360,000) (373,000) (1,924,000) (40,000) (2,337,000) (333,000) (372,000) (494,000) (1,199,000)

Financing Activities, Cash Flows Provided By or Used In Dividends Paid Sale Purchase of Stock Net Borrowings (78,000) (385,000) (280,000) (1,000) 675,000 (89,000) (268,000) 159,000 (198,000) (70,000) 230,000

Other Cash Flows from Financing Activities Total Cash Flows From Financing Activities 181,000 Effect Of Exchange Rate Changes Change In Cash and Cash Equivalents Currency in USD. 17,000 333,000

29 Exhibit 4, Wal-Mart Income Statement

Period Ending

Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses

Jan 31, 2011 Jan 31, 2010 Jan 31, 2009 421,849,000 408,085,000 404,254,000 315,287,000 304,444,000 303,941,000 106,562,000 103,641,000 100,313,000 81,020,000 79,639,000 77,546,000 -

Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items




201,000 181,000 284,000 25,743,000 24,183,000 23,051,000 2,205,000 2,065,000 2,184,000 23,538,000 22,118,000 20,867,000 7,579,000 7,156,000 7,133,000 (604,000) (513,000) (499,000) 15,959,000 14,962,000 13,734,000

1,034,000 -

(79,000) -

146,000 -

Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares Currency USD

16,389,000 16,389,000

14,370,000 14,370,000

13,381,000 13,381,000

30 Exhibit 5, Wal-Mart Balance Sheet

Period Ending

Jan 31, 2011 Jan 31, 2010 Jan 31, 2009

Assets Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock

7,395,000 5,089,000 36,318,000 3,091,000 51,893,000 107,878,000 16,763,000 4,129,000 180,663,000

7,907,000 4,144,000 32,713,000 3,268,000 48,032,000 102,307,000 16,126,000 3,942,000 170,407,000

7,275,000 3,905,000 34,511,000 3,258,000 48,949,000 95,653,000 15,260,000 3,567,000 163,429,000

52,415,000 6,022,000 47,000 58,484,000 43,842,000 6,682,000 2,705,000 111,713,000 408,000 352,000 63,967,000 -

50,532,000 4,919,000 92,000 55,543,000 36,401,000 5,508,000 2,180,000 99,632,000 307,000 378,000 66,357,000 -

47,638,000 7,669,000 83,000 55,390,000 34,549,000 6,014,000 1,794,000 97,747,000 397,000 393,000 63,660,000 -

31 Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets Currency in USD. Exhibit 6, Wal-Mart Cash Flow Jan 31, 2011 Jan 31, 2010 Jan 31, 2009 Net Income 16,389,000 14,370,000 13,381,000 Operating Activities, Cash Flows Provided By or Used In Depreciation 7,641,000 7,157,000 6,739,000 Adjustments To Net Income (383,000) (425,000) 435,000 Changes In Accounts Receivables (733,000) (297,000) (101,000) Changes In Liabilities 2,124,000 2,400,000 1,626,000 Changes In Inventories (3,086,000) 2,213,000 (184,000) Changes In Other Operating Activities 1,087,000 318,000 752,000
Period Ending

3,577,000 646,000 68,542,000 51,779,000

3,803,000 (70,000) 70,468,000 54,342,000

3,920,000 (2,688,000) 65,285,000 50,025,000

Total Cash Flow From Operating Activities 23,643,000 26,249,000 23,147,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (12,699,000) (12,184,000) (11,499,000) Investments Other Cash flows from Investing Activities 506,000 564,000 757,000 Total Cash Flows From Investing Activities (12,193,000) Financing Activities, Cash Flows Provided By or Used In Dividends Paid (4,437,000) Sale Purchase of Stock (14,776,000) Net Borrowings 7,456,000 Other Cash Flows from Financing Activities (271,000) (11,620,000) (10,742,000) (4,217,000) (3,746,000) (7,712,000) (3,521,000) (1,866,000) (2,918,000) (396,000) 267,000

Total Cash Flows From Financing Activities (12,028,000) (14,191,000) (9,918,000) Effect Of Exchange Rate Changes 66,000 194,000 (781,000) Change In Cash and Cash Equivalents Currency in USD. (512,000) 632,000 1,706,000

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62 66 67 68


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