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Why does Amazon want to open bricks-and-mortar stores, anyway?

  • News
  • February 4, 2016
  • Elly Strang
Why does Amazon want to open bricks-and-mortar stores, anyway?

Read our previous story, Is the revival of bricks and mortar putting pureplay retail at risk? 

The news didn’t come directly from Amazon itself – it came from someone in the industry.

“You’ve got Amazon opening bricks and mortar bookstores and their goal is to open, as I understand, 300 to 400,” Sandeep Manthrani, chief executive of a large US shopping mall operator, General Growth Properties, said.

It isn’t clear where Manthrani got the figures from, but some have raised the possibility of it it being a slip of the tongue after speaking with Amazon’s real estate people about their plans for expansion.

Amazon has not yet commented on the news, which is making headlines around the world.

In November, Amazon opened its first bricks-and-mortar store in Seattle in the US.

It was described as a “physical extension of Amazon.com”, seeing as book titles were chosen and organised according to online reviews and sales.

“It’s data with heart,” vice president of Amazon Books, Jennifer Cast, told the Seattle Times. “We’re taking the data we have and we’re creating physical places with it.”

It promised the prices in the store wouldn’t differ from online – the same prices which booksellers all over the world had issues with, because they didn’t include GST.

 Some seem confused as to why Amazon would want to roll out physical bookstores, so here is a breakdown of some of the theories being reported:

  1. It sees untapped potential in physical bookstores, thanks to a resurgence in sales.

Though widely reported as in danger or dying, plucky bookstores have pushed through a digital upheaval and come out the other side unscathed. There have been casualties in the form of what one co-worker called “big, soulless book chains”. Borders and Dymocks have shut their doors and quietly exited New Zealand. But those who weathered the storm, including the indie bookstores, have all done well. Last year was the first significant rise in book sales in New Zealand, with Nielsen reporting a growth in book sales volume of 7.1 percent (5.3 million books sold). Now that Amazon has well and truly dominated the online realm (see graph below) and being the competitive, dog-eat-dog business it is, it could be keen to set its sights on the physical world – particularly with bookshops doing so well.


Source: Fortune

  1. The stores will act as showrooms for its online store.

Many theorise that the ecommerce giant is trying to target people who feel overwhelmed by its huge online catalogue, or perhaps want to smell, see and touch a book before buying it, by having stores act as showrooms. It makes sense, considering a recent report by business intelligence firm L2 called ‘Death of Pureplay Retail’ found customers still regard the traditional instore experience as the most important when making a purchase (72 percent) followed closely by the store’s website (67 percent). The Seattle Times reported that at Amazon’s first bricks and mortar store “every book will face out, rather than be stacked tightly with only their spines showing. That leaves far less space for books.” Basically, the focus would be on displaying the books, rather than accommodating lots of stock.

3. It’s a way for Amazon to combat expensive shipping prices.

To keep its prices competitive, Amazon charges customers much less than what it actually pays for shipping. It spends billions a year on shipping, as seen by the graph below. Amazon’s shipping costs grew 31 percent in 2014, which is faster than its shipping revenue. Amazon may also be hit with GST when countries like New Zealand and Australia introduce a tax on overseas online sites, which would rack up additional costs. When taking this into consideration, bricks and mortar could be seen as a cheaper investment.

Amazon's costs of shipping vs. how much it charges customers for shipping​


 

  1. It gets books to people faster than any fancy drones or its Prime Now service.
    Despite same-day deliveries, Prime Now (two hour waiting time) and Amazon Prime Air (drones), nothing Amazon has come up with is faster than an instant purchase in a bookstore.  Its logic could be that if people care a lot about a book and also wanted the cheapest price, it’d be worth their while to go to a physical Amazon bookstore to buy it.
     
  2. It’s not actually happening, and everyone is freaking out for no reason.

This, too, is a possibility. The source, Manthrani, has since retracted his statement, while an anonymous source told the New York Times Amazon has “modest” plans to expand but not plans for 300 to 400 stores. For now, Amazon is keeping everyone guessing.

​ ​

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