His parent company's shares may have taken a drubbing on the American market overnight, but Robin Terrell is guardedly cheerful. The managing director of Amazon.co.uk cannot say too much ahead of a trading update due later this month, but is happy to report that the future of e-tail looks assured.

"This Christmas was our biggest ever, a great success," he says. "I have been at Amazon for six years, and every year people have said it was going to be the online Christmas.

"But as the technology improves and people spend more of their time online, the 'online Christmases' keep coming."

Last month the Yuletide rush involved Amazon.co.uk despatching a record 400,000 items in one day, and claiming a 99 per cent order completion rate.

Any lingering festive spirit at Amazon.com might have been knocked yesterday, however, when one influential analyst raised the prospect of increased competition cutting into the book and music retailer's margins.

Shares in the group lost as much as 7 per cent of their value on the Nasdaq after Lanny Baker of Smith Barney, the stockbroker, cut his recommendation on Amazon to "sell" from "hold", arguing that the e-tailer faces higher spending on marketing and technology in order to protect its early lead in the online retailing market.

"Despite the vigour of e-commerce, we believe that increasing competition will limit Amazon's margin expansion possibilities, and near-term profit figures may not support a share price that has climbed 27 per cent in just over two months," the broker warned.

The factors highlighted by Mr Baker look especially relevant in the UK, where high street stalwarts such as Tesco and John Lewis are reporting explosive growth at their online arms. According to Verdict, the market researchers, British consumers spent £2.6 billion online in the last three months of 2004, a 44.5 per cent increase on the previous year.

Conventional retailers have realised that they cannot afford to miss out on the lucrative evolution of e-tail and are now making online shopping a priority, according to Alison Lancaster, the head of marketing and catalogues at John Lewis Direct.

Mr Terrell won't comment on specific analyst comments nor specific competitors, but he does highlight how Amazon has broadened the range of products it offers since it started life as an online bookshop in 1994. He points at the way Amazon now sells digital cameras and popcorn poppers and is delighted at anecdotal evidence suggesting that consumers associate the company as much with cheap DVD players as books and CDs. This is, he says, part of a ambitious strategy designed to stretch the company over "the entire retail segment".

"Online shopping is becoming more convenient while people are spending more time online and that is driving growth," Mr Terrell says. "There is, I think, probably some switching, where people are moving away from the traditional high street retailers, but I think it is also a case of people spending more money.

"At Amazon we are seeing profits growth and more new customers but our revenues are growing faster than our customer base - people are spending more per trip, which we are very pleased about.

"Meanwhile, we are moving away from what has been our core market - books, movies and music. About a quarter of our business is now electronics, it's great to hear from people that they associate Amazon as much with buying a DVD player or renting a DVD as with buying books."

The idea looks to fit in with the ethos behind the original business plan drawn up by Jeff Bezos, Amazon's founder, who made "getting big fast" a principle aim. A decade later, it seems Amazon is still desperate to grow to insulate itself from competitive pressures.

"The market is very big," says Mr Terrell. "There can be a number of very successful companies."

"The 'get big fast' idea was, in part, about justifying that first business plan. So it was about justifying starting a business that wasn't going to deliver profits and was going to make losses in the early years. It's hard to say what the right size would be, but we definitely want to get bigger - both organically and through acquisitions if the right opportunities came up.

"We don't have to open shops to grow our top line so we don't have that additional cost per unit sold."

Sales of some new product lines are growing fast - "actually exponentially". The company is also in the rare position, for an American retailer, of making most of its money overseas.

Meanwhile, the kind of spending mentioned by Smith Barney - for example, on Customer Relationship Management - CRM - technology designed to direct customers to goods they are likely to buy - is ongoing, says Mr Terrell and a central part of the Amazon plan.

"Developing the customer experience while focusing on delivering great value is still a huge priority," says Mr Terrell.

"The technology changes on a very regular basis and we are always working to develop the levels of personalisation. For example, you can now tell the site when you are buying something as a gift or when you don't like something that you have bought, and it will not recomend any similar items. This is a really important part of what we do and it just can't be reproduced in a physical store.

"And what people have to realise is that we are still in the very early days."

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