The Wall Street Journal recently broke the news that, according to the publication’s sources, Amazon plans to open up department store-like physical retail locations in the US. These stores – the first of which are expected to pop up in Ohio and California – will be around 30,000 square feet and likely focus on selling items such as clothing, household appliances, and furniture.
Of course, Amazon isn’t new to physical retail and already has its Go and Fresh grocery stores, its bookstores, its 4-star outlets, and its pop-up stores, as well as its Whole Food Market subsidiary. Its latest stores, however, would represent the largest physical retail spaces in the commerce giant’s portfolio.
Ben Scoggins, CEO of Organic, isn’t surprised by Amazon’s shift toward a physical department store format, because Amazon has been “relentless in their focus of serving the customer”.
“Physical flagship stores are merely the latest way to give consumers something they want – a chance to touch the merchandise before buying,” says Scoggins. “In the grand scheme of things, this isn’t a big bet for the world’s largest retailer, but it is a chance to experiment. And their timing appears good too. In the last week alone, bricks and mortar department stores Macys in the US and Marks & Spencer in the UK have both posted better than expected results.
“Amazon knows that its shoppers enjoy a multi-channel approach to retail and the biggest mistake retail competitors can make is to view them as a company that lives only in the digital world.”
Jessica Chapplow, Head of Ecommerce at Havas Market, agrees, describing Amazon as “a digital department store”.
“30,000 square feet could be the magic number, as this is substantially smaller than traditional department stores, but could signal the ambition Amazon has to make the physical retail space work smarter and not harder,” explains Chapplow.
“This approach offersconvenience, aided by using the space to facilitate returns, Prime Now, and Amazon Flex pick-up. In addition, stores that multitask as showrooms will drive experiential retailing and instant gratification for shoppers who would rather try and then buy products in person.”
Why it makes sense?
The retail space has had its fair share of ups and downs over the course of the pandemic, with many businesses forced to shut their doors for good while others, like Amazon, saw huge increases in online demand. Despite this, according to research from Salsify, 39% of people would be willing to use an Amazon Go store if there was one near them, showing an appetite for physical sites from the company.
“When one combines these findings with the fact that physical retail space is cheaper now than it was before the pandemic, and that some of the experiential products that Amazon wants to sell, such as private label apparel, require a physical store, their speculated move to create 30,000 square foot stores is hardly surprising,” says Vijayanta Gupta, Senior VP of Growth at Salsify.
“Amazon understands that multi-channel retail is a necessity for the wide assortment of products it wants to sell. Hence, after mastering ecommerce, it confidently strives to create cohesive digital and physical shopping experiences to increase customer satisfaction and remain competitive. In addition, Amazon has the necessary know-how and infrastructure to turn the stores into a treasure trove of digital data on consumer behaviour, further augmenting their existing data-driven business strategies.”
Shaun Brown, Managing Director/Shopper & Commerce Marketing Lead at Momentum Worldwide, believes that Amazon’s rumoured move into department store-like locations “could reignite the retail experience in a space that is ripe for innovation” and, as a result, deliver “a win for shoppers”.
“Translating the CX they have mastered in the digital space into the retail space would draw shoppers and reap profits. It would also drive competitors to reinvest in their stores to remain competitive, in the same way they have spent the last few years investing in their own ecommerce to remain competitive,” states Brown. “Amazon will increase the standard of connecting the online content, data and learning about each of us into experiences that continue in the retail store with even more connectivity in an online-offline loop.”
How can the rest of the market respond?
For many years, other retailers have been clawing away trying to find a way to close the gap to Amazon and have been, mostly, unsuccessful. Opening up larger retail locations has the potential to further extend Amazon’s dominant position, and that’s why retailers need to find a way to respond, even though “it’s simply unfeasible and not financially viable for retailers to tear their shops down and start from scratch”, according to Ofri Ben-Porat, CEO of Edgify.
“While we’re likely to see Amazon’s model become the norm in a decade or two, for now, retailers need an interim solution that meets the demands of modern consumers without the negative impact that a complete overhaul would require.”
Ben-Porat points to augmentation to enhance the customer experience as a possible solution, highlighting that “most retailers can deploy software to train artificial intelligence models in-store in a couple of hours, without impinging on the privacy of customers”.
Tony Preedy, Managing Director at Fruugo, agrees that retailers have to find solutions, but warns that it’s not just Amazon’s high street rivals that should be concerned.
“Amazon’s latest move into large physical retail is evidence that Amazon, as an individual retail entity, intends to increasingly compete against its own marketplace sellers. It is a clear demonstration of why retailers need to spread commercial risk by using multiple marketplaces to ensure they’re not putting all their eggs in one basket,” says Preedy. “It’s long been known that using multiple sales channels is a strategic move that spreads risk. However, it’s not enough today to just have a strong digital presence – diversification goes for ecommerce itself too.
“Retailers that expand their ecommerce offerings can be certain to protect against risk and uncertainty, and ultimately maximise sales in both the short and long term, no matter what direction platforms like Amazon take in the future.”