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With new stores, Amazon is trying to take over as much of retail as possible

The logo of Amazon is seen on the door of an Amazon Books retail store
Reuters/Brendan McDermid
Amazon is set to open a series of new brick-and-mortar stores that sound similar to the department stores it's often blamed for helping to kill.
  • Marc Bain
By Marc Bain

Fashion reporter

Published

Amazon is set to open a number of large new stores, similar in some ways to department stores, furthering the e-commerce giant’s expansion into the world of physical retail.

The new shops will help Amazon extend its reach in categories such as clothes, home goods, electronics, and more, with an assortment that could lean heavily on Amazon’s many private label products, according to the Wall Street Journal, which broke the news today (Aug. 19). The new stores will be smaller than most department stores—about 30,000 square feet rather than the more typical 100,000 square feet—following the trend set by companies such as Macy’s and Bloomingdales, which are opening smaller stores outside of malls (it’s unclear if Amazon will site its new stores away from malls). The new spaces will be much bigger than most of the physical shops Amazon has introduced, such as its cashier-less Go stores. The first of these new stores are expected to open in California and Ohio.

Amazon’s push into brick-and-mortar retail

Amazon has been investing in expanding its physical presence in urban areas, notably pushing into groceries with its purchase of Whole Foods in 2017. The move into larger brick-and-mortar retail spaces selling general merchandise is unexpected for an e-commerce company often blamed for the decline of department stores, malls, and numerous independent shops, and raises the question: What is Amazon thinking?

Amazon isn’t saying. “We don’t comment on rumors and speculation,” a spokesperson said when contacted for comment.

But the company’s ambitions have always been bigger than just dominating online shopping. It wants to own as much of retail and its customers’ wallets as possible. Stores offer Amazon a number of benefits, and while they’re arguably not the most efficient way for it to make money, the company can afford to experiment.

Stores are still where most sales happen

Physical stores still account for more than 85% of US retail sales, even with the surge in e-commerce during the pandemic. Amazon is determined to own even more of that pie. Based on its most recent earnings, Amazon is estimated to have surpassed Walmart as the largest retailer outside China in terms of the total value of merchandise it sells.

Companies and experts also regularly note that shoppers don’t think about their purchases in terms of discrete channels. They may discover a product first in a store, where they’re able to touch and see it; buy it later online; and then may want to go back to the original store to return the item if it doesn’t work out. The scenario can be more convenient for customers than purely shopping online. Amazon’s new stores could allow it to develop more of this sort of shopping ecosystem, something other retail giants, such as China’s Alibaba, are also working on. Stores additionally serve as a powerful marketing channel, acting as the physical manifestation of a brand. Amazon could use the new locations to insert itself further into shoppers’ lives, even if it arguably hasn’t always gotten its messaging right with its physical locations.

Stores are retail experiments

If Amazon has a clear strategy for its physical expansion, it’s not easy to decipher. “They don’t know what’s going to happen with stores,” Sucharita Kodali, a retail analyst at Forrester Research, told Quartz last year. “I would be shocked if they had a plan. I think it’s about throwing things against the wall and seeing what sticks.”

Amazon has experimented with physical spaces before, such as the mostly mall-based pop-ups it shut down in 2019. It has also used stores to test new technology. Its Go stores, for example, are essentially a proof of concept for the technology, which allows shoppers to check out without the need of a cashier. Amazon is now selling the tech to other retailers.

The new stores could similarly be a way for Amazon to collect data and gain insight about shoppers, or to trial new capabilities it hasn’t yet announced. They could double as logistics hubs, and serve other purposes beyond simply being a place to sell products.

Amazon can afford it

If Amazon were dependent on the success of these stores for its survival, like department-store chains are, it might be in trouble. But it’s not. The company is earning nearly as much in sales of services, such as cloud computing, as it is from sales of products. These services are helping Amazon rack up substantial profits and can subsidize other parts of its business, giving it the freedom to try new ideas.

The moment might even be ideal for the company to move further into physical retail. Amazon has emerged as one of the winners from the pandemic thanks to the boom in online shopping, while many mall-based shops, department stores, and other retail spaces were forced to close, leaving landlords in search of tenants and sending commercial real-estate prices plummeting. Demand for warehouse space used for e-commerce fulfillment has offset the drop to some degree, but Amazon appears well-positioned to get good deals on commercial space.

The new department-store-like concept may work for Amazon. It may not. Either way, Amazon is clearly thinking about how to use physical spaces to increase its dominance over US retail.

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