Amazon plans to extend its reach further by opening its own small format department stores in big cities to increase its sales items like of clothing, household items, and electronics as well as Amazon’s private label products.
This may be an avenue to reach people who want to touch and feel products before they buy, who don’t typically shop online or who don’t use credit cards. It will also allow Amazon to study and track the shopping habits and browsing of in-store consumers as they peruse the merchandise.
Ohio and California will be home to the first of the 30,000 square foot stores. Amazon’s track record in physical retail has not been tremendously strong, so it remains to be seen if this will be a profitable move for it.
This post is based on the Daily Voice article, Amazon plans to open department stores, but not for the reason you think, report says, by Zak Failla, August 30, 2021; the InStore Magazine article, Amazon’s New Department Stores: Robots and 4 More Things to Expect, by INSTORE Staff, October 10, 2021; Amazon is opening a brick-and-mortar store in the Providence Place mall, by Alexa Gagosz, November 29, 2021; and the YouTube video in the Spotlight. Image source: Evan Lorne/Shutterstock.
1. What dimensions of the external environment may be driving Amazon’s decision to open smaller format stores?
Guidance: While Amazon takes 40% of all online sales in the U.S., Americans still make 84% of their purchases in physical stores. So far, Amazon has over 600 physical locations of its own in various formats. Changes in the competitive environment have made this seem an opportune time to make further inroads.
Amazon wants to gain a larger foothold against competitors like Target, Walmart, and CVS, in addition to traditional department store chains. The pandemic further crippled traditional department stores, such as Sears and JC Penney, which were already struggling to fight Amazon’s presence before the pandemic even started. Since 2018, nearly 1,000 department stores have closed their doors.
Now, this dearth of competitors means that market voids may free up a spot for Amazon to more quickly get a foothold if it can find a more cost-effective store size and format than traditional stores and create a new department store model for the future.
2. How might location and capacity considerations factor into Amazon’s decision?
Guidance: The smaller store footprint of 30,000 square feet will be less expensive to build and maintain than traditional 100,000 square foot department stores. Also, with many stores of various types and sizes closing their doors permanently as a result of the pandemic as well as generally declining sales, Amazon can get in at lower prices or get better terms for its leases.
3. How could the Amazon department stores help with last mile delivery and reverse logistics?
Guidance: Typically, online purchases are returned more frequently than purchases at a physical store. Managing these costs and finding sufficient means to transport and process returned goods has become increasingly challenging for businesses. By having physical stores where customers can touch, feel, see, and try on items such as clothing or household décor, Amazon may be able to reduce the number of items returned.
Second, having its own branded stores could be less of a risk and commitment than trying to buy out an existing chain.
A third reason these physical locations may help with last mile delivery and reverse logistics is that the stores could serve as both distribution and return points. Amazon could ship some items purchased online from store locations instead of from warehouses, possibly offering same-day delivery. It could also have customers drop off online returns, similarly to how it currently does in its partnership with Kohl’s and at its Amazon-owned Whole Foods locations.