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By
Reuters
Published
Nov 10, 2010
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Amazon.com to buy owner of Diapers.com, others

By
Reuters
Published
Nov 10, 2010

Amazon.com
Amazon headquarters
(Reuters) - Amazon.com (AMZN.O) plans to buy the owner of online shopping sites Diapers.com and Soap.com for $500 million, the world's largest online retailer said on Monday, as it aims to sell more household items that need to be replenished.

The deal, which has been approved by shareholders of the smaller company, Quidsi Inc, gives Amazon a larger base of repeat customers who have learned they can buy basic items like diapers, soap, laundry detergent and other household goods online without having to visit store locations.

Those items have been staples at big-box retailers from Wal-Mart Stores Inc (WMT.N) to Costco Wholesale Corp (COST.O), and e-commerce experts believe their sales will take a hit.

"I'm sure the executives at Wal-Mart, Target (TGT.N), Safeway (SWY.N), Kroger (KR.N), Albertsons, & Walgreen (WAG.N) among others are very, very concerned that Diapers.com and Amazon are coming together," said Cathy Halligan, senior vice president of sales and marketing for PowerReviews.

Amazon shares were up $1.76, or 1 percent, at $172.53 on the Nasdaq at midday.

Amazon, which currently sells a wide variety of merchandise from books and electronics to garden and home goods, signaled its interest in the diaper market in September, when it announced its Amazon "Mom" subscription program, offering free shipping and other perks on baby items.

The company has been keen to transfer more of its customers to subscription programs for bulk items, whose convenience spurs more purchases and allows Amazon to better plan for purchases.

Sending bulk items such as diapers, dog food and laundry detergent through the mail means small profit margins, but retailers like Amazon and Diapers.com rely on a large and compelling selection, so customers order multiple items and shipping costs are diffused.

Amazon posted a 39 percent rise in revenue in its most recent third quarter. It is expected to spend more on technology to support its retail business in the fourth quarter, and analysts believe the company is willing to sacrifice some profit margin in the near term for longer-term growth.

SIMILAR DNA

Diapers.com and Soap.com share many of the elements that have driven Amazon's success strategy: free or discounted shipping, low prices and a large selection.

Customer service is a hallmark of Diapers.com and Soap.com and is similarly key to the success of another Amazon purchase, Zappos.com, the online shoe seller it acquired last year for roughly $1.1 billion.

Diapers.com, which launched in 2005, has about half a million customers. Sales -- which were around $300 million at an annualized rate in July -- have been doubling every year.

Chief Executive Marc Lore told Reuters in July that he expected Soap.com, which debuted that month, to be an even larger service.

In addition to buying Quidsi shares for $500 million in cash, Amazon will assume about $45 million in debt and smaller obligations. Quidsi, whose venture capitalist backers include New Enterprise Associates and Pinnacle Ventures, according to Amazon will continue to operate independently under its current leadership team and the brand names will not change.

Quidsi owns Diapers.com, an online shopping site dedicated to baby care products, Soap.com, which sells household and personal care products, and recently launched BeautyBar.com, a beauty products site.

The deal is expected to close in December.

(Additional reporting by Martinne Geller, editing by Dave Zimmerman and Gunna Dickson)

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