Amazon sells books, music, and many other items over the Internet and is one of the pioneers of online consumer sales. Amazon, based in Seattle, started by filling all orders using books purchased from a distributor in response to customer orders. As it grew, the company added warehouses, allowing it to react more quickly to customer orders. In 2013, Amazon had about 40 warehouses in the United States and another 40 in the rest of the world. It uses the U.S. Postal Service and other package carriers, such as UPS and FedEx, to send products to customers. Outbound shipping-related costs at Amazon in 2012 were over $5 billion. Following the introduction of the Kindle, Amazon has worked hard to increase sales of digital books. The company has also added a significant amount of audio and video content for sale in digital form. Amazon has continued to expand the set of products that it sells online. Besides books and music, Amazon has added many product categories such as toys, apparel, electronics, jewellery, and shoes. In 2009, one of its largest acquisitions was Zappos, a leader in online shoe sales. This acquisition added a great deal of product variety: According to the Amazon annual report, this required creating 121,000 product descriptions and uploading more than 2.2 million images to the website. In 2010, another interesting acquisition by Amazon was diapers.com. Unlike Zappos, this acquisition added little variety but considerable shipping volumes. Several questions arise concerning how Amazon is structured and the product categories it continues to add: 1. Why is Amazon building more warehouses as it grows? How many warehouses should it have, and where should they be located? (10 marks) 2. Should Amazon stock every product it sells? (10 marks) 3. What advantage can bricks-and-mortar players derive from setting up an online channel? How should they use the two channels to gain maximum advantage? (10 marks) 4. What advantages and disadvantages does the online channel enjoy in the sale of shoes and diapers relative to a retail store? (10 marks) 5. For what products does the online channel offer the greater advantage relative to retail stores? What characterizes these products? (10 marks)