Amazon helped crush department stores. Now, it seems, he wants to be

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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 approximately 30,000 square feet, less than a third the size of a traditional department store. Amazon will sell clothing, household items, electronics and other products in stores, the newspaper reported. The company’s growing range of private labels is expected to stand out prominently.
Amazon (AMZN) he declined to comment on his plans. “We don’t comment on rumors or speculation,” a company spokesman said in an email.
It may seem surprising that Amazon, which controls about 40% of all online shopping in the United States, wants to open similar locations in department stores.
But retail analysts said the plan would represent a lower stake commitment than buying a large chain like Kohl’s (KSS), with which Amazon has a partnership, and a way for Amazon to experiment and learn from a new format. A presence of brick and mortar in areas such as making and home decor would help Amazon reach customers who prefer to try on clothes and see other items before buying them. They would also help stimulate the growth of Amazon’s most profitable, but lesser-known, private brands, these analysts say.

These stores would also provide Amazon with central locations where customers could return the products they buy to their website and serve as de facto stores to ship products to buyers ’homes more quickly. According to analysts, opening stores would make sense from a real estate standpoint, because vacant shop windows are scattered throughout cities and malls and Amazon can be installed. for economic prices.

But there are risks. Amazon has no experience in managing department stores, and its registration with physical stores is unobtrusive.

“Touch and feel”

Department store sales fell from $ 184 billion in sales in 2010 to $ 135 billion in 2019, according to Census Bureau data. In 2020, they fell by $ 114 billion, according to the Census Bureau.

The deployment failed some department stores that already had problems, such as Neiman Marcus, JC Penney, Lord & Taylor and Stage Stores. About 1,000 department stores have closed since 2018, real estate research firm Green Street said.

The gap in the market opened by the collapse of many traditional department stores is one of the reasons Amazon’s calculations for opening these stores may take into account.

“They have long planned to explore this opportunity, created by the vacuum of many department stores closing,” said Venkatesh Shankar, a professor at the Texas A&M University Retail Studies Center. “They get access to good prices and leases.”

Despite the rapid growth in online shopping in recent years, physical stores continue to account for about 84% of total retail sales in the United States, according to the Census Bureau.

“Online is a convenient and efficient channel for repeat shopping, reordering bath fabrics, diapers and batteries,” Shankar said. “If you really want to create brands, the presence of bricks and mortars is critical.”

Analysts say physical department stores can be a vehicle for Amazon to get a larger share of customers who prefer to shop at stores, don’t have credit cards to buy online, or live in areas Amazon doesn’t serve.

“I think Amazon, with its infinite intention to continue to grow, intends to expand its market share through customers who can’t or don’t want to buy through e-commerce,” said Mark Cohen, director of Columbia Business School retail and former CEO of Sears Canada.

In categories like clothing and home decor, Cohen said, physical presence attracts customers “who want to touch and feel products instead of buying them blindly.” Physical stores also help better drive shopping and unexpected than online shopping, he said.

Amazon is trying to build 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 to these less familiar brands.

“Stores will help Amazon do a much better job of showcasing their offering, especially in their own brand,” Neil Saunders, CEO of GlobalData Retail, said in an email to customers. 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 function as shipping hubs for fast online orders and locations where customers can get orders online.

“These locations will function as last-mile distribution centers in heavily populated urban areas, where there are no distribution centers,” said Matthew Katz, managing partner of SSA & Co., a consulting firm, in a e-mail. This is an “advantage for the same day, even for delivery at the same time.”

“Terrible history”

There is no guarantee that Amazon can create a vibrant department store. His recent forays into physical stores have been mixed.

Amazon is known as an online store, but in recent years it has moved into physical commerce. In 2015, Amazon opened its first physical store, Amazon Books, in Seattle. Two years later, Amazon bought the 471 Whole Foods stores for $ 13.7 billion. Amazon also has dozens of 4-star stores, where it sells its merchandise with the highest score, Amazon Go cashless convenience stores and pop-up stores. Amazon is also building a new separate line of grocery stores, called Amazon Fresh, to pursue a mid-market buyer, 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 presentation.
Amazon's grocery chain is growing. They are not Whole Foods

Amazon has not seen the same level of success with physical stores as online. Sales at Amazon’s physical stores fell 0.18% in 2019 from $ 17.2 billion a year earlier 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 Forrester retail analyst.

Kodali said “department stores are an agonizing format” and it would be a mistake for Amazon to open up a similar concept. The previous stores Amazon has opened have been “completely insignificant. It doesn’t give confidence in the thesis that Amazon’s next store will change the game.”

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