Jeff Bezos - CEO, Amazon
It’s the news that’s sent retailers across the world into a fit of panic, that’s right, tech colossus Amazon is planning to open 400 physical bookstores.
Taking its brick-and-mortar battle with retailers to the frontline, the confirmation came from Sandeep Mathrani, CEO of shopping mall operator General Growth Properties, as reported by the Wall Street Journal.
“You’ve got Amazon opening brick-and-mortar bookstores and their goal is to open, as I understand, 300 to 400,” Mathrani told the WSJ.
For most, the irony is not lost on a company synonymous for crushing long-standing bookstore brands suddenly sweeping in to fill the gaps.
But as the dust settles on the news, many believe the venture isn’t all that wacky for the world’s biggest online retailer, who opened its first physical bookstore - Amazon Books - in November last year.
“Stores will be a foundation of consumer retail until a majority of things can materialise in our homes through some wonder of physics,” says Robert Hetu, Research Analyst, Gartner.
“It has seemed obvious for a few years that Amazon would make a leap into the physical at some point (I know there are denials but I do not believe them).”
For Hetu, the move is a “sensible approach” by Amazon, citing five key reasons why opening physical stores makes sense.
“Fulfilment,” he says. “Amazon fulfllment costs are skyrocketing year over year (37 percent in 4Q15) and as a result the low-cost e-commerce advantage over physical is fading.
“Amazon Prime,” he adds. “Prime is a genus loyalty program that will certainly translate into the physical space.”
Gartner consumer research indicates that about 1/2 of consumers in the US are members of Prime, and the number goes higher in the 25-34 year old demographic.
“Multichannel retailers,” Hetu adds. “Consumers still prefer to shop in store. Omnichannel is failing to deliver consistent cross channel experiences for customers due to poor execution.”
Gartner research shows that 50 percent of consumers chose to shop online instead of in store due to price or product availability.
For Hetu, this “certainly implies” that if all things were equal physical retail stores could win more often than they do today.
“Broad array of categories,” Hetu adds. “There are many categories to choose from.”
While it may start with books and music, Hetu claims Gartner research shows US Amazon Prime members are purchasing from multiple categories.
“Digitalisation of retail,” Hetu adds. “Consumers are finished with strictly digital or physical experiences.
“Shopping and transacting are blending into a seamless experience that will require retailers to adapt and enable consumers to shop and purchase on their own terms.
“Amazon may perceive a ceiling in future growth unless it embraces this model.”
But as a word of caution, Hetu believes this will not be an easy transition for Amazon, claiming that physical retailing is different and even its vast customer knowledge won’t insulate it from growing pains.
“However, the financial markets always give it room so all you multi-channel retailers out there have to improve execution now,” he adds.
