Why Would Amazon Open Physical Stores?

Why Would Amazon Open Physical Stores?

Reports suggest that Amazon is looking to open physical stores in the future and the first step would be to open several bookstores in the U.S.  While Amazon opened its first physical book store in Seattle in late 2015, after the success of temporary pop-up stores, it appears that the company might now be looking at expanding its physical footprint. Although Amazon is an established player in the global retail e-commerce market which is expected to reach $2.5 trillion by 2018, e-commerce still would represent less than 10% of the global retail market.   We believe that by opening physical stores, Amazon might be looking to provide a more personal shopping experience to its consumers, reduce shipping costs by providing a store pick up facility and integrate the online and offline shopping experience for its consumers in addition to creating a strong brand image.


Reduced Shipping Costs, Human Shopping Experience

E-commerce companies now appear to be looking at expanding their brand appeal and providing an integrated shopping experience to consumers. Chinese ecommerce giant Alibaba opened its first physical store in North China earlier this year to boost sales of its imported products. While an online shopping experience provides options to quickly search for a product and compare prices, it cannot replicate the social and human shopping experience which Amazon and Alibaba are not looking to provide. A combination of lowest prices with the option of physically examining a product before buying could work well for e-commerce companies and it appears that Amazon is looking to create this experience for its customers.

Amazon is also looking to reduce its delivery costs and provide faster delivery. A physical store can enable the company to provide a “pick in store” option which will reduce shipping costs and also provide the customer the convenience to pick up an item when they want ensuring speedy and timely delivery. Physical stores can also be used as small warehouses by the company to stock frequently ordered items and ship them from the store for faster delivery.

While Amazon’s deep pockets might enable it to make the huge investments required for opening physical stores, whether it would be able to attract the required skills to execute a brick and mortar strategy remains to be seen. Although Amazon appears to have mastered the e-commerce space, ensuring that the right products are curated for its physical stores with trained sales personnel to answer queries and guide consumers might be a challenge.

While we believe physical stores could enable Amazon to improve its brand image, attract more customers, potentially reduce shipping costs and provide an integrated shopping experience, its execution strategy around these stores and ability to manage a brick and mortar business would be important to succeed in this market.


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