Home Bookselling As consumers return to stores, why would Amazon close the door?

As consumers return to stores, why would Amazon close the door?


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The pandemic has boosted e-commerce as more consumers have discovered its convenience. That led research firm FTI Consulting, for its part, to move its timeline forward three years, to this year, for online sales to easily top $1 trillion.

However, the vast majority of shoppers still prefer stores. About three-quarters of consumers even prefer them for ordinary household items, according to consultancy firm Big Village. Yet in a year where retailers have dramatically reduced store closings and Amazon itself saw a 3% drop in online retail sales in the first quarter, the e-commerce giant closed all its bookstores, 4-star stores and pop-ups. The nearly 70 locations – 66 in the US, two in the UK – accounted for nearly all of its non-food fleet. As of press time, all that’s left in this category is a single recently opened Amazon Style clothing store.

Amazon said by email that it closed those stores so it could focus on its other physical and technology retail offerings, and preserve its ability to innovate and scale its business over the long term. But in doing so, it may have lost an opportunity to take full advantage of its own pricing and technological prowess, and could lose sales in some categories, according to Big Village chief executive David Albert. Overall, the company is pulling out of much of the retail landscape, according to Kelly Goetsch, Chief Strategy Officer of headless commerce platform Commercetools.

“Even as e-commerce continues to thrive, physical locations play an important role in enabling customers to have an immersive, in-person shopping experience,” Gotsch said by email. “I think Amazon’s decision to close their physical locations did not take this into account and could potentially impact their business going forward as shoppers return to physical retail post-pandemic.”

Not a retailer?

Again, Amazon’s business is centered on logistics, technology and, increasingly, advertising, not retail, some experts say. For years, its third-party marketplace sellers have been responsible for the bulk of the merchandise sold on its site.

“Ttheir ability to accomplish the way they do is quite an amazing feat. Understood,” Nick Egelanian, President of Retail development firm SiteWorks, said by telephone. “I don’t think anyone is saying he’s run phenomenal stores. We know they didn’t think those stores were that great because they closed them down. »

Several observers, including Egelanian, have described Amazon’s non-food stores as untargeted. This was especially true for its 4-star stores, which were marketed with items that were selling well on its website, resulting in a confusing assortment of random products. And – unlike the many independent booksellers that survived the price-based disruption unleashed by Amazon a quarter century ago – Amazon’s bookstores were not organized in a way that invited browsing or discovery, but rather to best-sellers.

“Running a warehouse is much easier than running a retail store because in retail you need to be good at logistics and technology — plus 10 other things,” Egelanian said. “They haven’t proven they know how to market, they haven’t proven they know how to operate, they haven’t proven they know how to score, they haven’t proven they know how to match. There are a lot of “unproven”.

GlobalData chief executive Neil Saunders in emailed comments noted the lack of omnichannel options. “OOther than some payment technologies, Amazon has never really connected its stores and online like many retailers have,” he said. “Options to order online and collect from stores, or check stock levels before leaving, were non-existent. This, in our view, was a missed opportunity.

The choice of location was also random, suggesting a lack of understanding of site selection, Egelanian said. Amazon said there was a lot of deciding where to open a store, but declined to elaborate.

“It’s not at all clear to me that Amazon has a competitive advantage in physical retail.”

Kirthi Kalyanam

Professor and Executive Director, Retail Management Institute at Santa Clara University Leavey School of Business

“Every physical store should have a store template,” Egelanian said. “There’s a financial model, but you also need a demographic model and a physical model — how big is the store? How far does he go? What is the optimal type of real estate in which it goes? What is the optimal number per market? What does it take to make money by market and by management structure? None of these things seemed to be present.

Kirthi Kalyanam, professor and executive director of the Retail Management Institute at Santa Clara University’s Leavey School of Business, agrees that Amazon the core capabilities don’t extend to running physical stores, and it’s not clear the e-commerce giant wants to expand on them.

“Everything they are good at seems to be very well suited to e-commerce – to run the marketplace, provide fulfillment and delivery for marketplace sellers, provide advertising for marketplace sellers,” Kalyanam said over the phone. “It’s not at all clear to me that Amazon has a competitive advantage in physical retail.”

Amazon said via email that brick-and-mortar retail remains an important part of its business, citing one of the most common reasons other retailers give for getting into e-commerce – to give customers more choice when it comes to e-commerce. when, where and how they shop – and that it will continue to open new stores. However, its experience with brick and mortar is largely over, at least when it comes to most non-food products, as the company sees little reason for it, according to Russ Dieringer, Founder from e-commerce research firm Stratably.

“They are happy with a purely digital experience in general merchandise categories as long as they can deliver quickly and offer easy return locations,” Dieringer said.

Why stores?

While it nearly wiped out its non-food locations and exited the offline book business, Amazon has been running grocery stores and, for the past few months, a clothing store.

Whole Foods, which the company acquired in 2017, makes up the bulk of Amazon’s grocery operations, with more than 500 locations, and it’s expanding its value-priced Amazon Fresh channel. In addition to Whole Foods, and including stores opening this month, the company operates 85 grocery-focused stores: 58 Amazon Fresh in the US and UK and 27 Amazon Go convenience stores.. Each banner, which Amazon says is run independently from the others, increasingly includes technology that collects payment through a mobile app when customers exit the store.

Why is Amazon so ambitious when it comes to brick and mortar in this retail segment?

Its grocery stores benefit from the retail talent established at Whole Foods years ago, Egelanian notes. Kalyanam believes that to some extent Amazon is stuck with what was an expensive acquisition. But its grocery store, along with its new GrubHub partnership, is also helping Amazon perfect its walk-in payment technology and delivery beyond its fulfillment center-based logistics, Kalyanam said. These could eventually become lucrative on their own, like its logistics, advertising and, most dramatically, AWS cloud services, he said.

“They’re very good at the e-commerce part of home delivery,” he said. “They have yet to do high-frequency door-to-door delivery – where I order something and get it within the hour. It’s usually the restaurant, food, and all those delivery apps. And ultimately, grocery home delivery is going to be a great delivery business.

What about clothes?

In May, Amazon unveiled its first clothing store at The Americana at Brand mall in Los Angeles and plans to open a second in Columbus., The Easton Town Center shopping mall in Ohio. Most of the reasons to expand into groceries probably don’t apply to apparel sales, so it’s not entirely clear why Amazon would venture into brick-and-mortar in that category after ditching the books and other goods.

As with books, the company has captured a significant share of clothing. Amazon is now the No. 1 apparel seller in the United States, topping $65 billion, nearly double the No. 2 Walmart and about 15% of the entire U.S. market, according to a June report from Wells analysts. Fargo led by Ike Boruchow. These analysts expect Amazon to surpass $73 billion in apparel sales this year.

The company has developed fit technology which is a key feature of the store, so perhaps that’s the focus. But running a specialty clothing store is even more complicated than other segments due to the vagaries of fashion, according to Egelanian.

Every fashion retailer should have some sort of statement,” he said. “What does the Amazon brand do? “Amazon fresh, Amazon style”? If the idea is to make money in physical retail, they have yet to show the skill to do so. That doesn’t mean they can’t get good. But if it’s like their other stores, it will confuse the customer.