AMAZON WORKING WITH NEW TOOLS.

Byline: Rachel Beck Associated Press 

Amazon.com, trying to build itself into an online superstore, is expanding into both software and hardware - real hardware, as in nails, sandpaper and power tools.

The new offerings, announced Tuesday, are part of a rapid expansion that is costing the money-losing Web site hundreds of millions of dollars, prompting some analysts to question how long Amazon can continue to spill red ink before its business plan starts to crumble.

``It is still unclear how these new areas may end up affecting their spending and whether their losses will extend even further going forward,'' said Sara Zeilstra, an analyst at Warburg Dillion Read.

In its four years in business, Amazon has yet to report a profit. But it has grown substantially, expanding from just selling books into music, videos, auctions, toys, electronics and greeting cards.

Amazon also allows anyone - from giant multinational manufacturers to up-and-coming artists - to sell merchandise on its Web site through its zSHOPS program.

At the end of September, Amazon was the most frequently visited shopping site on the Internet, according to Web research firm Media Metrix.

Amazon's latest expansion comes at the start of all-important holiday shopping season. Amazon has said it will spend heavily this Christmas to add products and services as well as advertise its Web site.

``To not invest at this time would be incredibly shortsighted,'' said Jeff Bezos, Amazon's founder and chief executive.

But some investors seem to be growing less tolerant of Amazon's free spending, especially since the company is expected to lose nearly $375 million this year and has warned that it will not profitable until 2002.

After Tuesday's announcement, Banc of America downgraded Amazon's stock, which fell $7.1875 to $70.8125 in trading on the Nasdaq Stock Market. That erased more than half of Monday's $13.0625 gain, which came in anticipation of an announcement of expansion plans.

``At the current level, we find it impossible to justify, based on our fundamental outlook, an adequate return on the stock over the next 12 to 18 months,'' Banc of America analyst Tom Courtney wrote in a research note.

Regardless of Wall Street's concerns, Amazon continues to expand into merchandise that it believes customers want to buy online.

Starting today, Amazon will begin to offer computer software, including office, home, educational and gaming titles. It will also broaden its selection of video games.

It will also launch a home improvement store, offering everything from screwdrivers to chain saws. More than 350 manufacturers will be represented on the site, including most of the well-known brands such as Stanley, Black & Decker, Panasonic and 3M.

It will also stock some hard-to-find merchandise, such as Carhartt all-weather jackets and DeCristo Safety Products' cowboy-shaped hard hats.

To build its home improvement store, Amazon recently purchased the catalog, online and distribution operations of Tool Crib of the North, a Grand Forks, N.D.-based company that specializes in construction, tools and woodworking equipment. Tool Crib's catalog, which is well known in the hardware business, will continue to be published.

``Rather than Amazon jumping into a new area that they don't know too much about, this is a better way of doing it,'' said John Segrich, director of equity research at CIBC World Markets.

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PHOTO Jeff Bezos, founder of Amazon.com, shows a power drill and saw for sale online.

Richard Drew/Associated Press

CHART: Amazon expansion