Online retail pioneers Amazon.com and drugstore.com Thursday announced the end of their groundbreaking partnership.

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There was no good luck — only, good night.


Online retail pioneers Amazon.com and drugstore.com Thursday announced the end of their long-time and groundbreaking partnership. Since 2000, drugstore has paid a fee to have its products carried prominently on Amazon’s site.


Seattle-based Amazon, which owns a 14 percent stake in Bellevue-based drugstore, sent out an early-morning news release to announce the split.


The online retail giant said it had worked to build direct relationships with major health and beauty brands, including Procter & Gamble, Johnson & Johnson and Unilever.


With those relationships in place, the company said it now can offer customers a wider selection and lower prices.


If one were to read between the lines, the message was this: Amazon no longer needs drugstore. Good night.


Drugstore’s Chief Executive Dawn Lepore may not have appreciated the characterization. She began her company’s quarterly conference call Thursday afternoon by saying she would like to get the “facts straight.”


Lepore told investors that she made the call to terminate the agreement.


The partnership represents a small and shrinking part of drugstore’s business, Lepore said. For the first nine months of this year, the relationship brought in $5.8 million, or 2.3 percent, of drugstore’s $256.5 million in sales.


Drugstore’s third-quarter partnership-related sales, meanwhile, fell 60 percent versus the year before. “One of my primary goals is to make sure drugstore is spending time on the highest value activities — initiatives that provide the highest growth,” she said.


Good night, back.


The agreement, which ends Nov. 9, represents more than a dwindling partnership between two companies. In April 2000, drugstore became the first Internet retailer to hang a shingle on Amazon’s site.


It marked the start of Amazon’s transformation from a store that attempted to sell everything itself to one that grew through partnerships with other retailers more skilled in their respective niches.


The Amazon.com Commerce Network partnered with other Internet retailers to sell products and services on its site, in exchange for payment and minority stakes.


Others followed drugstore, seeing it as a healthy alternative to the massive and unfocused marketing agreements many struck with Internet portals at the time.


Amazon over time came to refine the way it partnered with other retailers. It now licenses its powerful e-commerce technology to toysrus.com, Target.com and others.


These deals have become an important part of Amazon’s business. Not only do they enhance the Web site’s selection, the deals carry fatter profit margins than if Amazon were to sell directly to consumers.


Drugstore — once the sole provider of health and beauty products on Amazon’s site — began to share shelf space with others in 2003. Its ties with Amazon shifted in other ways.


Amazon CEO Jeff Bezos left the board in the middle of the year, replaced by another Amazonian, Charles “Cayce” Roy. (As a major shareholder, the company still has a spot on the board.)


Former drugstore CEO Kal Raman, meanwhile, went to work for Amazon last September to oversee its important consumer-electronics, PCs, wireless and tools category.


Beyond the partnership, Lepore, who joined drugstore as CEO a year ago, said she will not be satisfied with the company’s growth “until we have reached profitability.”


The company on Thursday reported a third-quarter loss of $7.1 million, or 8 cents, on $96.6 million in sales.


She told analysts she would forfeit her $350,000 guaranteed bonus this year. “I remain driven to engineer this company for sustained growth and sustained profitability,” she said.


Bob Toomey, chief equity strategist for Seattle-based E.K. Riley Advisors, said it makes sense for Amazon to move in the direction of dealing directly with brands.


“It just boils down to economics and where Amazon feels it can get more leverage for its investment and its technology,” he said.


The broader, unspoken implication for Amazon’s partners and potential partners may be this: We’ll partner with you today and compete against you tomorrow. It’s up to Amazon to diminish these fears.


Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com






















































drugstore.com
Dollar figures in thousands, except per share; parentheses denote losses.
Sept. 30 %
3rd QTR 2005 2004 CHG
Profit $(7,108) $(32,843) +78.4
Per share (0.08) (0.43) +81.4
Revenue 96,596 84,287 +14.6
9 mos. 2005 2004 CHG
Profit $(16,407) $(42,372) +61.3
Per share (0.18) (0.56) +67.9
Revenue 293,061 256,493 +14.3