Amazon’s Department Store Plans Are Less Surprising Than They Look
“TIT WORLD wants you to be typical… Don’t let that happen, ”Jeff Bezos warned in April in his latest annual letter to shareholders CEO from Amazon. Hence the amazement that his e-empire adopted a very typical retail format: the department store. After helping many chains close their doors, she is now considering the format to increase her own fortune in retail.
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As a business, Amazon is entering a more mature phase. Today, with a new CEO, Andy Jassy, she is forced to recognize that pure e-commerce has limits. It also faces new competition from mainstream retailers like Walmart and Target who are belatedly showing that they can do well on the Internet too.
Amazon’s presence on the streets is low. Since 2015, he has opened 24 bookstores in America. Its 30 “4-star” stores, which stock items highly valued by customers, function as a walk-in website. Whole Foods, a high-end grocer he bought in 2017, contributes most of the revenue to its brick-and-mortar stores, which only accounted for 4% of Amazon’s total sales in the last quarter. Its new Amazon Fresh grocery chain and cashier-less Amazon Go stores are barely contributing.
So the new 30,000 square foot (2,800 square meters) retail space it plans to consider is a start. Amazon has neither confirmed nor denied its plans. But details leaked about store sizes and locations suggest some substance behind the reports. The first will open in California and Ohio. If they go well, Amazon should roll out more.
Why invest in the general public when covid-19 has boosted e-commerce? The growth rate of sales on Amazon’s platforms, including third parties, had slowed before the crisis, from almost 30% per year to less than 20%. The trend is reasserting itself with the return of people to stores. In the last quarter, Amazon’s online sales grew only 16%, below investors’ (muted) expectations.
In the future, customers will want an “omnichannel” retail business that combines online and physical shopping, says Mark Shmulik of Bernstein, a broker. As for the arrival of Amazon in department stores, a question arises: “What took them so long?” The motivation of the company is also defensive. Walmart made the omnichannel work well during the pandemic by merging its formidable physical network with its website and offering a same-day “click and collect” service.
Getting more physical may not be easy. Amazon’s physical performance has been ho-hum. While sales at most other major U.S. grocery stores have doubled or tripled during the pandemic, those of Whole Foods have barely budged, notes Sucharita Kodali of Forrester, a research firm. Last year, Amazon’s total physical store revenue was 6% lower than in 2018.
Making Amazonmarts attractive to buyers may be more difficult than Amazon expected. He would have liked them to sell his cheap private label clothes and gadgets, which contradicts his aspirations for stores to offer high-end fashion, which he has struggled with online. It’s unclear whether the outlets will emulate existing examples of the department store canon, as Amazon Fresh stores look like conventional grocery stores, or whether Amazon is planning to shake things up.
Another question is how this decision will affect returns for shareholders. Amazon should be able to rent or buy locations at low cost – bankruptcies have left many department store properties up for grabs. Still, investors may be disappointed that Amazon is still devoting more resources to retail. Many prefer its faster growing, much more profitable and more technical companies: digital advertising and cloud computing. “Why attack a dying industry? Ms. Kodali asks, suggesting that Amazon might have another shot at making smartphones.
Amazon’s stock price is down 8% since its last results. In addition to posting slower online sales for the second quarter, he predicts a slowdown in total sales over the next. He also warned that costs will rise sharply in the future as he increases his investments. Physical retail would claim part of the dosh. The irony would not be lost on Sears and other defunct department stores. ■
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This article appeared in the Business section of the print edition under the title “Jeff and Andy’s”