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Amazon.com sets up home-furnishings link

Amazon.com said it will add yet another product category to its growing list of offerings.

Tuesday, the company announced an agreement with Web-commerce site Living.com to create a Home Living store on Amazon's already well-populated Web site.

Amazon will receive $145-million from Living.com over a period of five years in exchange for being Amazon's exclusive home fashions and furnishings store. Amazon.com will make an investment in Living.com to acquire an 18 percent stake in the company, with warrants for another 9 percent, upon the transaction's closing, which is expected later this quarter.

The announcement came a few days after the company said it would lay off 150 Seattle-based employees and two days before it will report fourth-quarter earnings to a skeptical Wall Street.

Analysts said last week the layoffs were a message to Wall Street that Amazon would pay closer attention to its profitability, which it had forgone in favor of increasing product lines.

The deal with Living.com is a bit different from others in that Amazon isn't going into the home furnishings business but will get revenue and equity from the arrangement.

The Home Living store plans to sell furniture, bedding, home textiles, decorative accessories, window treatments and other home-related products. The Home Living store will be displayed prominently along with Amazon's other offerings, including books, music, video, consumer electronics and home improvement.

The new mantra at Amazon is to make the company "a place where you can find and discover anything and everything you might be looking to buy online." That sentiment was repeated in a statement from Amazon chief executive Jeff Bezos on Tuesday.

Living.com chief executive Shaun Holliday said, "This agreement gives us access to Amazon.com's 16-million customers who are already sold on buying online, it associates Living.com with the leading brand in online shopping, and it gives us a way to reach customers and build relationships that others will not be able to duplicate."

Analysts say that, even though the details of the deal are sketchy, it's a sign that Amazon is still focused on expansion but no longer at the expense of profitability.

"The exclusive deal means Amazon understands it would be more profitable to receive advertising revenue and have an equity stake than to actually go into that business for themselves," said Ken Cassar, an analyst with Jupiter Communications in New York. Living.com will be the exclusive merchant in the Home Living area, basically capitalizing on Amazon's reputation, traffic and brand name to offer its products.

"They are beginning to learn how expensive it is to go into other lines of business," Cassar says. "It may be logistically better to allow others to run those businesses but capitalize on the ad revenue."

Cassar also says the home market has just begun to emerge online. Jupiter Communications predicts revenues will hit $300-million in 2000 and may reach as much as $600-million by 2003.

The Living.com deal and others with zShops, Amazon's auction area, Drugstore.com and Pets.com are all cases where Amazon has begun to loosen its usual tight grip on merchandising and distribution.

"As Amazon moves away from completely controlling the customer experience and relying on partners to execute orders, there is risk that damage could be done to their brand," Cassar said. "But it's becoming increasingly apparent to me that Amazon is realizing they cannot lose money forever."

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