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Traditional companies turning e-tailers

From CNN's Maggie Lake
Amazon has invested millions in new facilities to keep up with customer orders.
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Electronic Commerce

FERNLEY, Nevada (CNN) -- Whether their roots are in brick and mortar or cyberspace, online retailers share a common challenge: attracting an Internet-savvy consumer with an insatiable appetite for discounts.

These days, the pressure is on e-tailers to stay one step ahead of technology, to keep prices low and to attract the thousands of new customers who are migrating from the mall to the Web every day.

As one of the pioneers of e-tailing,'s business is built around making customers' online shopping experiences simple and affordable.

But in order to stay on top, the company made, what some described as unusual, a decision to invest millions of dollars in facilities, contradicting the common belief that online businesses operate with little physical infrastructure.

Amazon's enormous base in Fernley, Nevada is the size of four aircraft carriers, has nine miles (14.5km) of conveyor belts and moves hundreds of thousands of items out the door everyday.

As orders are placed by customers over the Internet, a computer at Amazon's facilities assigns it to a scanner, and a staff member collects it and scans the item.

Amazon's head of worldwide operations, Jeff Wilke, told CNN the company's new buildings were more productive, enabling shipment of goods to customers to happen as quickly as possible.

"We've been able to enhance the customer experience, get things to people faster with few defects -- and all of that lowers the cost," he said.

The operating efficiencies helped Amazon triple its earnings in the third quarter of the current year, while still being able to offer consumers incentives, including free shipping.

As competition increased in the online retailing market, building customer loyalty became critical, Wilkes said.

Americans are on pace to spend $144 billion dollars online during 2004. Ebay and Amazon are the sites most frequently visited, but traditional retailers are nipping at their heels. Walmart now runs a close third.

It is a similar story in the United Kingdom, the second biggest Internet market after the U.S., with sales last year reaching £9 billion.

Four of the five top e-tailers in the UK are traditional retailers.

Among them is Littlewoods, which specializes in homeware and clothes. It is one of Britain's fastest growing online retail businesses.

At its main distribution center in the north west of England, massive cranes filled with boxes give an indication of just how big the online business is.

The company believes that it is benefiting from the facilities it has had in place for years.

Littlewoods managing director Alan Evans told CNN that setting up an online offshoot of its business enabled the company to give customers value for their money.

"It's very easy to set up an Internet site and take a few orders," he said.

"But as more of the traditional retailers, and particularly ourselves who've got a heritage in home shopping, have started to trade on the Internet we're able to bring this scale of infrastructure into play to give customers great value and the service they demand."

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