2001 Toourshareholders: In July of last year, Amazon.com reached an important way station. After four years of single-minded focus on growth, and then just under two years spent almost exclusively on lowering costs, we reached a point where wecouldafford to balance growth and cost improvement, dedicating resources and staffed projects to both. Our major price reduction in July, moving to discount books over $20 by 30% off list, marked this change. This balance began to pay off in the fourth quarter, when we both significantly exceeded our own goals on the bottom line and simultaneously reaccelerated growth in our business. We lowered prices again in January whenweofferedanewclassofshipping that is free (year-round) on orders over $99. Focus on cost improvement makesit possible for us to afford to lower prices, which drives growth. Growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it’s good for shareholders. Please expect us to repeat this loop. AsImentioned, we exceeded our goals for the fourth quarter with pro forma operating profit of $59 million and pro forma net profit of $35 million. Thousands of Amazon.com employees around the world worked hard to achieve that goal; they are, and should be, proud of the accomplishment. More highlights from a notable year: • Sales grew 13% from $2.76 billion in 2000 to $3.12 billion in 2001, and we achieved our first billion- dollar quarter on reaccelerated sales in Q4. • Weserved25million customer accounts in 2001, compared to 20 million in 2000 and 14 million in 1999. • International sales grew 74% in 2001, and more than one-quarter of sales came from outside the U.S. The U.K. and Germany, our largest international markets, had a combined pro forma operating profit for the first time in Q4. Open only a year, Japan grew to a $100 million annual run rate in Q4. • Hundreds of thousands of small businesses and individuals made money by selling new and used products to our customers directly from our highly trafficked product detail pages. These Marketplace orders grew to 15% of U.S. orders in Q4, far surpassing our expectations when we launched Marketplace in November2000. • Inventory turns increased from 12 in 2000 to 16 in 2001. • Mostimportant, we stayed relentlessly focused on the customer, as reflected in a chart-topping score of 84 for the second year in a row on the widely followed American Customer Satisfaction Index conducted by the University of Michigan. We are told this is the highest score ever recorded--not just for any retailer, but for any service company. Obsess over customers: our commitment continues Until July, Amazon.com had been primarily built on two pillars of customer experience: selection and convenience. In July, as I already discussed, we added a third customer experience pillar: relentlessly lowering prices. You should know that our commitment to the first two pillars remains as strong as ever. Wenowhavemorethan45,000itemsinourelectronics store (about seven times the selection you’re likely to find in a big-box electronics store), we’ve tripled our kitchen selection (you’ll find all the best brands), we’ve launched computer and magazine subscriptions stores, and we’ve added selection with strategic partners such as Target and Circuit City. We’veimprovedconvenience with features like Instant Order Update which warns you if you’re about to buy the same item twice (people are busy--they forget that they’ve already bought it!).
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