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Amazon launches first bricks-and-mortar store – what will it mean for retail?

6th Feb 2015
Editor MyCustomer
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Given Amazon has now confirmed the ‘launch’ of its first physical store at a university that boasts Neil Armstrong among its alumni, it seems apt, if not a tad shameless, to ask the question – is this one small step for ecommerce, one giant leap for retail? Or is it, in actual fact, the other way round?

In any case, it’s official: the world’s largest ecommerce player has announced the grand opening of its first “pick-up and drop-off location”, or shop to more conventional folk, amongst the leafy surroundings of Purdue University campus in Indiana, with the aim of giving students “more affordable” books and supplies.

Called [email protected], the store’s location may not quite conjure up the image of razzmatazz associated with New York’s Fifth Avenue or London’s Bond Street, but Purdue’s alumni do include the world's most famous astronaut, no less, and the central hub of a mid-State university offers Amazon a handy home in which to conduct its first bricks-and-mortar experiment.

“Whether students are ordering textbooks, laptops, or mac and cheese, Amazon and Purdue are now providing a convenient and secure spot for them to pick up their stuff at hours that work with their schedules,” says Paul Ryder, vice president of media and student programs at Amazon.

Or in other words, students are tech-savvy nonconformists that represent a useful demographic in which to test out the viability of Amazon having more of a physical presence in our lives.

Why?

The real question is – why is Amazon, the company that has pushed many traditional retailers to the brink of extinction with its aggressive online business model, moving into bricks-and-mortar retail in the first place?

“The retail market is in a state of flux,” says Craig Sears-Black, UK MD of Manhattan Associates. “Retailers are moving quickly and employing new delivery options all the time in order to keep up with growing customer demands. Bricks-and-mortar stores are becoming more like mini-fulfilment centres, and retailers are embracing ship-from-store more than ever before, because for certain products it’s more profitable to fulfil the order that way.

“This is not so much about opening a shop for Amazon; it’s about extending its delivery options,” agrees Phillip Smith, UK country manager at Trusted Shops.

“Opening stores will allow them to service same day delivery at a low cost, plus also offer click-and-collect which many High Street stores already do. The products on display will be for marketing purposes or used as upselling opportunities when people come to collect their products. This is no traditional shop.”

Amazon’s naming of its new store appears to conform to this reasoning. And with an estimated 80% of shoppers doing at least half of their Christmas shopping online this year, and separate figures showing people leaving it later and later each year, as Sears-Black adds, “for pure-play retailers like Amazon, they need to have a bricks-and-mortar presence to fulfil these orders as quickly as customers demand, and to do so profitably.”

Saviour of the High Street?    

Martin Smethurst, MD of retail at Wincor Nixdorf believes that Amazon’s latest move is further proof that the high street is set for a period of renaissance:

“The opening of Amazon’s first physical store is a great indicator that the High Street will never die. Consumers still, and always will, want a shopping experience where they can touch, feel and play with products before they purchase – particularly when it comes to hi-tech or high ticket items.

John Pincott, managing director, Europe, at Shopatron, echoes these sentiments: “Although online has changed consumers expectation of what shopping should be like, research shows time and time again that we still love the convenience and customer services that come with buying items in-person,” he says. “For the retailer, giving customers in store pick-up services and the option to buy additional products in a physical location drives footfall and increases the opportunity for them to see other products they’d also like to buy.”

While this would suggest that the launch of a store is something of a no-brainer for Amazon, not all are convinced that the move would be a wise one for the ecommerce giant.

“I think it is a very strange move for Amazon, who pride themselves on being the biggest online store and marketplace in the west. Their scale is achieved by being online and not having the restriction of bricks-and-mortar stores,” says Mark Pearson, founder of MyVoucherCodes.co.uk. “I don’t see any value in them doing this, when we still see the High Street and traditional retail under pressure because of the growth of online and mobile commerce.

“With mega-sized companies like Tesco suffering, how can Amazon think they can compete and succeed by having real physical stores? What does seem to work on the High Street is specialist stores, but Amazon is far from specialist. It sells common goods at the best prices, which is highly competitive. They achieve this because of their immense scale and volumes they can drive. I doubt they can replicate this with this physical store.”

In that respect, the question remains as to whether Amazon will ever truly have the capacity to take the new store away from University campuses and onto the high street, in order to compete with the convenience and service offered by other physical stores.

New challenges

With its latest announcement, certainly the etailer will be opening itself up to a range of challenges unique to the retail world that it is unfamiliar with.

“I think Amazon are underestimating the potential challenges having a physical store will bring them, including the volumes of customers who will want to have a real face-to-face communication, whether that be an enquiry or a complaint that will be now driven in-store,” warns Pearson.

“Amazon has failed to achieve any significant profits since its inception, and with the new substantial costs around planning, launching and maintaining a network of stores [like the one at Purdue], I don’t see this helping Amazon towards substantial profits, if anything the opposite could happen. I see potentially Amazon wanting to only replicate the flagship style stores that Apple have established and more recently Microsoft have shown interest in. But the big difference is Amazon is not really a successful product company like Apple, who use their stores as gallery/showroom.”

Based on the early images released by the ecommerce giant, Pearson’s points appear to be closer to the truth than Amazon may wish admit.

Bad news for pure-plays?

Nevertheless, with Amazon having had no shortage of success with its previous innovations, the business world will be watching with interest. And if it does prove to be a successful new strategy, the implications could be huge for the retail sector.

“Bricks-and-mortar retailers have caught up in recent years by offering an omnichannel experience. This has given them the upper hand over the pure-plays. Now that Amazon is creating an omnichannel experience this will put pressure on the pure-plays to catch up!” predicts Smith. “Even pure-plays like ASOS may have to rethink offering just one channel, if Amazon is successful.”

Kees De Vos, commerce development director at MetaPack, agrees that the impact could be felt more by pure-plays rather than High Street retailers.

“This latest move could be a positive one for the High Street as it will drive traffic and footfall, benefitting all retailers who have a bricks-and-mortar presence,” he predicts. “The bigger blow will be for pure-plays rather than bricks-and-mortar – Amazon is really differentiating itself from other pure-plays. However, we have seen great examples of pure-play retailers, like ASOS and Wiggle, emerge in the past few years, which have created robust pick-up options and leveraged the convenience network, in lieu of stores.”

If this proves correct, and Amazon’s university experiment expands out onto the High Street as many expect, then it may yet prove somewhat pessimistically more poignant to adapt Neil Armstrong’s famous quote to state, “one small step for Amazon, one giant leap backwards for everyone else”. 

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chau
By PaulChau
16th Apr 2018 10:01

I think that a company needs to do what it needs to do to make sure that it stays in touch with all of its customers, and the truth is that people sometimes need a physical outlet so that they can get some of their issues resolved. Things somehow can get lost in translation when you speak over the internet over a chat bot while people deal with the actual items in the backend and at the storage warehouses. If this helps to improve customer satisfaction and the company reliability, I'd say it's a great solution!

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