Why is Amazon launching a physical store – and what will it mean for retail?

According to reports, Amazon is set to open its first bricks-and-mortar store in New York City in time for the holiday season.

The Wall Street Journal claims that the online retailing giant will launch its first physical shop in Manhattan, specifically 7 West 34th Street – a location that has a staggering footfall thanks to its proximity to the Empire State Building, which attracts over 4 million visitors a year.

The WSJ claims it will serve as a mini-warehouse and a click-and-collect destination, as well as cater for product returns and same-day deliveries in the city.

So if the reports are correct, 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?

“The opening of Amazon’s first physical store is a great indicator that the High Street will never die,” notes Martin Smethurst, MD of retail at Wincor Nixdorf. “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.

“With many of Amazon’s own products showcased - such as Kindle ereaders, Fire phones and TVs - it’s interesting to note that the company will have a limited inventory for shoppers that want their purchases instantly, or at least on the same day. The Manhattan location suggests that Amazon is reacting to consumer preferences, who still want to savour the Christmas shopping experience, rather than clicking and waiting for postal deliveries.”

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. 

“This is a smart move by Amazon, by enabling customers to move freely between their physical and online stores and giving customers what they want in a hassle-free experience, shoppers will have less reason to look elsewhere this Christmas season.”

No traditional shop

But beyond fulfilling customer experience desires, there are other more pragmatic reasons that could be driving this decision.

Craig Sears-Black, UK MD of Manhattan Associates, explains:  “The retail market is in a state of flux. 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. Recent research by Manhattan Associates found that 80% of shoppers are planning to do at least half of their Christmas shopping online this year, and they are planning on leaving it later and later. 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.”

“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 will be no traditional shop.”

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 so, 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 on physical stores.”

New challenges

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 more traditional store network, 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 interesting in. But the big difference is Amazon are not really a successful product company like Apple, who use their stores as gallery/showroom.”

Danielle Pinnington, MD at shopper research agency Shoppercentric, adds: “For me, the challenge will be how to make the bricks-and-mortar Amazon retail experience worth a visit. Amazon is a highly automated retail experience, how would that be translated into store? Or is this about creating a more human face to the brand? In which case perhaps staff will be on hand to advise in the same way the website does: other people who have looked at this also bought... Surely that is the least shoppers would expect?

“An Amazon store is bound to generate a lot of interest so the business needs to make sure visitors get more than a run-of-the-mill experience. I'd hope the store will utilise the shopper data Amazon hold, so wouldn't it be great if the experience was like something out of Minority Report... It may be hugely disappointing if it fails to deliver something special.”

Retail implications

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.

“High Street 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.”

However, Pincott believes that even High Street stores would not escape repercussions.

“This is further proof that smaller and specialised retailers wishing to compete and avoid disappearing off the High Street in the face of such a challenge by the retail giants need to seriously consider how their offering compares,” he notes. “The final piece of any online retailer’s consumer offering is to allow a physical location in which shoppers can interact with the store and pick-up goods in a way convenient for them, for example, through click-and-collect.”

Only time will tell whether the rumours are indeed true – and whether such a venture will prove a success. But the fact that the business world is entertaining the rumour that Amazon could conceivably launch physical stores reflects how much the retail landscape is changing.

"Many players with different backgrounds are now converging toward the same trends: local & practical services, click and collect, appointment booking for privileged instore experiences (personal shopping)," says Bruno Berthezene, country manager of Solocal Group UK. "Online & physical commerce are becoming increasingly merged, and brands and distributors have to face new challenges and needs, like product and store locators, hyper location, etc."

De Vos concludes: “The High Street is no longer just for shopping. The last few years have seen an increase in new in-store experiences, like showrooming. If Amazon is investing in the High Street it suggests it’s still an important element of retailing.

“Amazon has pushed the capabilities of delivery and it’s done a great deal for the industry but it still doesn’t give the proximity of a store network. The customer is looking for a well-rounded service and, as a result, human interaction is still very important. This means that the in-store experience still plays a pivotal role. The new face of retail is all about interacting across any channel and Amazon has seen retailers emerging on the scene who have made use of store networks and the ability to provide a positive in-store experience. Now it wants to take advantage of this.”