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By Nathaniel Meyersohn, CNN Business
Updated 11:11 AM EDT, Fri August 20, 2021
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New York CNN Business —
Amazon upended the US brick-and-mortar department store model built by companies like Sears and J.C. Penney. Now, the e-commerce giant reportedly has plans to open physical stores that resemble the concept it’s helping to crush.
Amazon is expected to open department stores in the United States, starting in Ohio and California, the Wall Street Journal reported Thursday, citing people familiar with the matter. The stores are expected to be roughly 30,000 square feet — less than a third of the size of a traditional department store. Amazon will sell clothing, household items, electronics and other merchandise at the stores, the Journal reported. The company’s growing lineup of private, in-house brands are expected to be featured prominently.
Amazon (AMZN) declined to comment on its plans. “We do not comment on rumors and speculation,” a spokesperson for the company said in an email.
It may seem surprising that Amazon, which controls an estimated 40% of all online shopping in the United States, would want to open locations resembling department stores.
Department stores would not be Amazon's first step into physical retail. Amazon bought Whole Foods in 2017.
But retail analysts said that this plan would represent a lower-stakes commitment than buying a big chain like Kohl’s (KSS), which Amazon has a partnership with, and a way for Amazon to experiment with and learn from a new format. A brick-and-mortar presence in areas like apparel and home decor would help Amazon reach customers who prefer to try on clothes and see other goods before buying them. It would also help spur growth of Amazon’s more profitable— but lesser-known — private labels, these analysts say.
These stores would also give Amazon central locations where customers would be able to return products they purchase off its website and serve as de-facto warehouses to ship goods to shoppers’ homes faster. Opening stores would make sense from a real estate perspective, according to analysts, because vacant storefronts are spattered across cities and inside malls, and Amazon can move in for cheap prices.
But there are risks. Amazon doesn’t have any experience running department stores, and it’s record with physical stores is spotty.
‘Touch and feel’
Department store sales shrunk from $184 billion in sales in 2010 to $135 billion in 2019, according to Census Bureau data. In 2020, they plunged to $114 billion, according to the Census Bureau.
The dropoff tipped some department stores that were already struggling — such as Neiman Marcus, J.C. Penney, and Stage Stores — into bankruptcy. Nearly 1,000 department stores have closed since 2018, said real estate research firm Green Street.
The void in the market opened up by the collapse of many traditional department stores is one reason that may factor into Amazon’s calculations to open such stores.
“They have long been planning to explore that opportunity, created by the vacuum of a lot of department stores closing,” said Venkatesh Shankar, professor at Texas A&M University’s Center for Retailing Studies. “They’re getting in at a good prices and lease rates.”
Despite the rapid growth of online shopping in recent years, physical stores still make up around 84% of total retail sales in the United States, according to the Census Bureau.
“Online is a convenient, efficient channel for repeat purchases, reordering bath tissues, diapers, batteries,” said Shankar. “If you really want to build brands, the brick-and-mortar presence is critical.”
Analysts say physical department stores may be a vehicle for Amazon to gain a greater share of customers who prefer to shop in stores, don’t have credit cards to shop online, or live in areas Amazon doesn’t service.
Jeff Bezos, the founder of Amazon, is photographed in Seattle in 2017.
Bezos is seen in 1996, a year after he started Amazon.com. At the time it was just an online bookseller.
Bezos and Sotheby's president and CEO Diana Brooks pose in a customized Volkswagen Beetle from the film "Austin Powers: The Spy Who Shagged Me" in 1999. Sotheby's and Amazon had teamed up to launch sothebys.amazon.com, an online auction site that would offer a broad range of objects, including this car.
Bezos holds a power drill and a stuffed Pikachu in 1999. By this point, Amazon had started to sell items other than books.
Gregory Nixon, left, delivers a set of antique golf clubs he sold to David Robichaud, center, via Amazon.com Auctions in 1999. Bezos was there for the moment, as Robichaud, a construction worker, was Amazon's 10-millionth customer.
In 1999, Bezos was named Time magazine's Person of the Year.
Bezos looks on as Microsoft CEO Bill Gates presents a T-shirt as a retirement gift to Clippy, the Microsoft Office assistant, in 2001. Microsoft was launching Office XP.
Bezos and his wife, MacKenzie, arrive at a media conference in Sun Valley, Idaho, in 2003. They divorced in 2019 after 25 years of marriage.
Jeff Bezos stands with one of Amazon's trademark door-desks at the company's Seattle headquarters in 2004.
Bezos introduces the Kindle e-reader at a news conference in 2007.
Bezos announces the Kindle DX in 2009.
Bezos, third from left, meets with NASA Deputy Administrator Lori Garver at the Blue Origin headquarters in Kent, Washington, in 2011. Bezos' Blue Origin was started in 2000 with the goal of providing low-cost access to private space travel.
Bezos holds up the new Kindle Fire HD during a news conference in Santa Monica, California, in 2012.
Bezos appears on "Late Night with Jimmy Fallon" in 2012.
Bezos unveils the Fire Phone during an event in Seattle in 2014.
Bezos poses on a truck while visiting Bangalore, India, in 2014.
Bezos tours The Washington Post's new offices in 2016. Bezos bought the newspaper in 2013.
Bezos listens to first lady Michelle Obama at a White House event in 2016. The event announced commitments from more than 50 companies to hire and train veterans and military spouses. Bezos announced a commitment by Amazon to hire 25,000 more military veterans in the next five years.
Bezos joins "Transparent" actor Jeffrey Tambor and director Jill Soloway after the Amazon Studios show won Emmys in 2016.
Bezos discusses his Blue Origin reusable rocket system in 2017. Reusable rockets would substantially reduce the cost of space flight.
US President Donald Trump and Microsoft CEO Satya Nadella listen to Bezos at a White House meeting of the American Technology Council in 2017. According to the White House, the council's goal is "to explore how to transform and modernize government information technology."
Bezos tours the Spheres, a gathering and working space for Amazon employees, at its opening ceremonies in Seattle in 2018. The space contains hundreds of plant species from cloud forest environments around the globe, and it maintains a tropical climate similar to Costa Rica or Indonesia.
Bezos shakes hands with Kim Kardashian West while attending the Met Gala in New York in 2019. Actor Jared Leto is on the right.
Bezos is joined by the children from the Blue Origin Club for the Future in 2019. At the event in Washington, DC, Bezos unveiled a Blue Origin prototype of a lunar lander.
Bezos shows off Blue Moon, Blue Origin's lunar landing prototype, in 2019.
Bezos announces the co-founding of The Climate Pledge in 2019. Bezos' broad plan to fight climate change includes meeting the Paris climate agreement 10 years early. That would make the company carbon-neutral by 2040. Bezos also announced that Amazon would purchase 100,000 electric vans.
Bezos stands next to Hatice Cengiz, the fiancee of the late journalist Jamal Khashoggi, as a plaque is unveiled near the Saudi consulate in Istanbul in 2019. It was a year after Khashoggi, a Washington Post columnist, was killed.
Bezos sits between his girlfriend, Lauren Sánchez, and Vogue magazine editor Anna Wintour at a Tom Ford fashion show in Los Angeles in February 2020.
Bezos testifies before a House subcommittee during an antitrust hearing in July 2020. Other powerful tech figures, including Apple CEO Tim Cook and Facebook CEO Mark Zuckerberg, were also questioned about their competitive tactics.
In December 2020, Bezos posted this photo of him and his mother, Jacklyn, after Blue Origin's rocket-catching recovery boat was named in her honor.
From left, Oliver Daemen, Bezos, Wally Funk and Bezos' brother Jeff pose for a picture after flying into space in July 2021. The trip marked the first-ever crewed flight of Blue Origin's suborbital space tourism rocket, New Shepard.
In pictures: Amazon founder Jeff Bezos
“I believe that Amazon, in their endless intent to continue to grow, intends upon expanding their market share through customers who can’t or don’t want to shop via e-commerce,” said Mark Cohen, director of retail studies at Columbia Business School and the former chief executive of Sears Canada.
In categories like clothing and home decor, Cohen said, a physical presence appeals to customers “who do want to touch and feel products rather than buy them blindly.” Physical stores also better help drive impulse and unexpected purchases than online shopping, he said.
Amazon is trying to build out its private label brands such as Amazon Essentials, Goodthreads, and Core 10 clothing and Rivet and Stone & Beam furniture. These department stores would give Amazon a platform to introduce customers these less-familiar brands.
“Stores will help Amazon do a much better job of showcasing its offer, especially in own brand,” Neil Saunders, managing director at GlobalData Retail, said in an email to clients. Saunders noted that other online brands, such as Warby Parker and The RealReal (REALR), are also expanding their physical presence.
Finally, Amazon is rushing to expand same-day delivery and stores could double as shipping hubs for speedy online orders and locations where customers can scoop up online orders.
“These locations will function as last mile distribution hubs in highly populated urban areas, where distribution centers are not located,” said Matthew Katz, managing partner at SSA & Co., an advisory firm, in an email. This is an “advantage for same day, even same-hour delivery.”
‘Terrible track record’
There is no guarantee Amazon can create a vibrant department store, though. Its recent forays into physical stores have been mixed.
Amazon is known as an online store, but it has moved into physical retail in recent years. In 2015, Amazon opened its first physical store, Amazon Books, in Seattle. Two years later, Amazon bought Whole Foods’ 471 stores for $13.7 billion. Amazon also has dozens of 4-Star stores, where it sells its highest-rated merchandise, Amazon Go cashier-less convenience stores, and pop-up stores. Amazon is also is building a new, separate line of grocery stores, called Amazon Fresh, to chase a mid-market shopper, different from Whole Foods’ high-end customer base.
As of December 31, 2020, Amazon had 611 physical stores in North America, including Whole Foods, according to its latest annual filing.
Amazon has not seen the same level of success with physical stores as it has online. Sales at Amazon’s physical stores dropped 0.18% in 2019 from the year prior to $17.2 billion and 5.6% in 2020 as more shoppers ordered online in the pandemic.
“Amazon has a terrible track record in physical retail,” said Sucharita Kodali, a retail analyst at Forrester.
Kodali said “department stores are a dying format” and it would be a mistake for Amazon to open a similar concept. The previous stores Amazon has opened have been “entirely unremarkable. It doesn’t lend any confidence in a thesis that Amazon’s next store is going to be a game changer.”
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FAQs
Why would Amazon opening physical stores? ›
The appeal of the physical store: With stores, Amazon can broaden its appeal by offering shoppers the ability to touch and feel items.
Will physical stores disappear? ›However, as more and more of the population receives vaccinations, it's become abundantly clear that brick-and-mortar retail will never disappear. There's no denying that it won't look the same. Even with vaccinations on the rise, it's likely that masks and social distancing will remain a part of our lives.
Will Amazon ever open a store? ›Amazon is opening a real-world clothing store with high-tech fitting rooms. Amazon is launching an apparel store, called Amazon Style, the company announced Thursday.
What advantages does Amazon have over Walmart? ›However, Amazon still holds a big lead over Walmart and has the advantage of Prime membership and a strong ecosystem of services. Amazon has a significant market share over the advertising dollars within the e-commerce industry.
What is the reason why Amazon is considered having one of the best supply chain? ›A big part of Amazon's success lies in its expert warehousing strategy, which ensures products are easily accessible from pretty much everywhere in the world. All the company's warehouses are strategically placed near big metros and population hubs, and inventory is spread amongst them to ensure supply can meet demand.
What is Amazon's main competitive advantage? ›Range, price and convenience are placed at the core of Amazon competitive advantage. The global online retailer operates with a razor thin profit margin and succeeds due to a combination of economies of scale, innovation of various business processes and a constant business diversification.
Is Target getting rid of inventory? ›Many shoppers have had to re-think their shopping habits as everyday living costs continue to climb. Due to changing consumer behavior, some retailers now have excess inventory. Target is one such brand, and the company will be slashing the prices of some of its products to clear out inventory.
Are malls a dying thing? ›Once-bustling American malls are going bust as shoppers flock to online retailers instead of sprawling, brick-and-mortar locations. Ten years from now, there will be approximately 150 malls left in the US, Nick Egelanian, president of retail consulting firm SiteWorks, told The Wall Street Journal.
Why are retail stores dying? ›Shift to e-commerce
The main factor cited in the closing of retail stores in the retail apocalypse is the shift in consumer habits towards online shopping. Holiday sales for e-commerce increased by an estimated 11% to 20% from 2015 to 2016.
With e-commerce fueling retail growth, Edge by Ascential is predicting that Amazon will overtake Walmart to become the largest retailer in the U.S. by 2024 and add more than $294 billion in U.S. sales between 2021 and 2026.
Will Amazon overtake Walmart? ›
Amazon will surpass Walmart as the largest U.S. retailer by 2024, as the online channel ramps up its share of overall retail sales dollars, CPG market researcher Edge by Ascential predicts.
Why do people quit Amazon warehouse? ›One frequently cited reason for the high rate of departures is Amazon's unusual compensation structure. Unlike other tech companies, Amazon caps salaries at around $160,000 for its white-collar workers, then adds stock grants that gradually vest in steadily increasing chunks over a period of four years.
What is the biggest threat to Amazon? ›Amazon Threats | WWF. Market forces, population pressure and infrastructure advances are continuing to pry open the Amazon rainforest.
What company is a threat to Amazon? ›(For more, see also: Why Amazon's Biggest Threat May Be Walmart.) In the fast-growing Chinese market, Wal-Mart has forged a formidable alliance against Amazon with giant online merchant JD.com Inc.
What is the biggest problem in supply chain? ›Shippers' Top 5 Supply Chain Challenges:
Keeping transportation costs down. Keeping up with customer/industry demands. Sourcing consistent, reliable carrier capacity. Keeping up with the latest technology solutions and demands.
Amazon businesses of all sizes reported experiencing supply chain-related challenges during 2021. This included 94% of large brands selling their products on Amazon, 93% of ecommerce brand management agencies, and 74% of small first- and third-party Amazon businesses.
What makes Amazon unique and successful? ›Amazon succeeded in building a consumer paradise. They charge much less and promise much more than other stores and platforms: The best selection by combining a retail business with a marketplace business, the best price by using the “buybox“, and the quickest delivery by offering FBA to their sellers.
What makes Amazon unique? ›What makes Amazon unique is that the company has never been content to "stay in its lane." The company began as an online retailer and is now a (perhaps the) powerhouse in cloud computing operations.
What is Amazon's business strategy? ›The business strategy of Amazon consists of focusing on investing in technologies, enhancing its logistics applications, improving its web services by fulfillment capacity, M&A strategy, R&D activities in logistics, experimenting with Fintech, and securing its inventions using patents.
Are Amazon physical stores profitable? ›In the fiscal 2022 third quarter, Amazon brick-and-mortar stores notched their sixth straight quarter of double-digit sales gains.
Why might Amazon have launched its first physical shop in London? ›
“One of their key motivations and ambitions is to try to gain a much better understanding of how the physical and digital worlds interact. They understand how the digital world works but they don't have much visibility over the physical world.”
When did Amazon start physical stores? ›Amazon Books was a chain of retail bookstores owned by online retailer Amazon. The first store opened on November 2, 2015, in Seattle, Washington. On March 2, 2022, it was reported that all Amazon Books would close on various dates in the future.
Why do we need physical stores? ›The main reason consumers prefer to shop in physical stores is, according to KPMG , to see, experience, and test products in person before buying. A physical location can dispel doubts and help close the sale. In addition, this can reduce the chance of a product being returned for size, color, etc.
How much can you make a month from an Amazon store? ›Almost half of Amazon sellers earn somewhere between $1,000 and $2,500 per month, with some sellers reporting earnings of up to $45k per year. Amazon allows you to put your products on display for everyone to see, which means more sales and ultimately more profit.
Is Amazon more profitable than Walmart? ›Walmart in its latest quarter reported revenue of $152.86 billion, up 8.4% year-over-year (YOY), compared to Amazon's 7% increase to $121.2 billion.
Why is Amazon not making money? ›Amazon is a bundle - it's hundreds of separate businesses, all running on the same common internal platforms. The big, established ones are highly profitable, but Amazon chooses to reinvest those profits into new businesses, so that reported net income for the company overall looks low.
Why is Amazon closing physical stores? ›Amazon said by email it closed these stores so it could focus on its other physical retail and tech offerings, and preserve its ability to innovate and scale its business for the long run.
Why is Amazon in Kohl's? ›A Mutually Beneficial Partnership
It was an unlikely partnership that nobody expected – and it proved remarkably effective for both parties. Amazon, for its part, made it easier for customers to return unwanted items without having to build a physical presence around the US.
Benefits of Amazon Easy Store
"ZERO" Inventory Cost: Without any inventory management, with the help of Amazon Easy, our store partners can sell any product from anywhere. 2. Fixed Commission: Amazon Easy provides a fixed commission on each booked product, which you can get directly in your Bank account..
It may surprise you to learn that Amazon has nearly 600 retail locations. 500 of those locations are Whole Foods stores and the remaining stores include convenience stores, grocery stores and even a clothing store.
How many physical stores does Amazon have 2022? ›
How many Amazon Go retail stores are there in the United States? There are 28 Amazon Go retail stores in the United States as of December 30, 2022. The state with the most number of Amazon Go locations in the US is New York, with 10 retail stores, which is about 36% of all Amazon Go retail stores in the US.
When did Amazon overtake Walmart? ›Amazon will surpass Walmart as the largest U.S. retailer by 2024, as the online channel ramps up its share of overall retail sales dollars, CPG market researcher Edge by Ascential predicts.
Why do people still buy offline? ›No Waiting Time for Delivery
Juxtapose that with heading out to the nearest store with your friends and instantly grabbing the bag you want. No waiting time, no unpredictable delivery! This is one of the most common reasons why brands encourage offline shopping.
3. People are more likely to buy a product when they've seen it in person. According to KPMG research, the top reason why consumers prefer to shop in physical stores is to see, experience and test products in person before buying them.
Why are physical retail stores in decline? ›The rising costs of digital marketing and over-saturation of DTC brands can significantly reduce gains made by saving on the overhead of a physical space.