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Why Is Amazon Opening Stores?

Trending by Angela Diffly
amazon-mainFear Factor

On ABC’s wildly popular TV show Shark Tank, investor and popular personality Kevin O’Leary (aka Mr. Wonderful) is known for harsh statements like, “You’re dead to me,” when entrepreneur contestants don’t agree to his deal, or the dreaded, “They’re going to crush you like the cockroach you are,” referring to large, established entities in the same competitive space as Shark Tank’s hopeful neophytes. I wonder what he would say about Amazon’s latest move, as the mammoth online retailer enters into uncharted territory, opening pop-up stores at an alarming rate, stirring fresh fears in the minds of its brick-and-mortar competitors.

The Amazon effect has had retailers of all shapes and sizes shaking in their shoes for many years. “The number one issue that retailers are facing (whether they realize it or not yet) is how to deal with Amazon,” commented IHL Group analyst, founder and president Greg Buzek. “There are 66 million households with Amazon Prime and free 2-day shipping. And 70 percent of American households with incomes over $112K have Amazon Prime. Add to this that 49 percent of all ecommerce searches on the Internet start with Amazon, and retailers need to be considering Amazon as a channel in much the same way they consider stores, mobile, and ecommerce.”

The Elephant In The Room

The elephant has crashed through the cyberspace walls and walked into the room, with 22 pop-up stores ranging in size from 300-500 square feet in 12 states. According to The Wall Street Journal, “Amazon.com has set up camp on enemy turf to sell Kindle tablets and e-readers.” The idea is to focus on the company’s branded electronic devices, like the Kindle, Amazon Fire, Fire TV, Dash buttons and the Echo and Amazon Tap speakers. The company has created a landing site for its pop-up stores, with the headline, “Let’s meet at our place,” along with categories like “Ask an Expert,” “Go For a Test Drive,” and “Make it Yours” (of course there’s also #amazonpopup). Some claim the number of pop-up stores could grow to 100 by next year, while others speculate growth could skyrocket to thousands of retail locations, as the company named after the largest river in the world flows deeper and wider into brick-and-mortar waters.

amazon-pop-upTrue Intentions

But you can bet that Amazon has its sights set on more than just selling e-readers. When you’re the Holy Grail of ecommerce, what do you really stand to gain by opening pop-up brick-and-mortar locations? If you’re Amazon, that answer is likely more than anyone can fathom. When Jeff Bezos founded the company, he originally wanted to name it “relentless” (relentless.com will still take you to Amazon). Some jokingly say the company has an unstoppable drive towards world domination. Newsweek put it this way: “It’s a little unsettling when a company is so hell-bent on dominating everything from grocery shopping (AmazonFresh), to entertainment (Amazon Originals), to the media (Bezos bought The Washington Post in 2013), to God knows what other areas of our day-to-day lives it plans on sticking a flag in. Now it appears the all-lowercase logo is going to be all the more ubiquitous, and that the physical world will no longer be a refuge from the company’s influence.”

Amazon has everyone guessing about its intentions, since the company has been quietly moving ahead with store openings sans fanfare. But when Amazon makes a move, the world watches, waits and wonders why. Much like the pop-up stores themselves, everyone is popping up with an opinion as to why Amazon would want to be in physical retail stores. The company has experimented with physical locations in the past via kiosks, vending machines and lockers. CNET speculates the new pop-up stores may indicate the company is getting serious about tapping the benefits of a retail presence, where people can try out actual products and buy them on the spot.

Bigger Ambitions

Business Insider reports, “It’s unclear why Amazon’s taking such a low-key approach to its pop-up store expansion. But it’s not uncommon for Amazon to do things quietly when it clearly has bigger ambitions. Amazon’s fashion team, for example, launched seven private labels over the past year—and it’s expected to overtake Macy’s as the top apparel retailer in the US by 2017.

Forbes asserts, “On the surface, this appears to be another odd and somewhat counter-intuitive incursion into the real world by a company that famously put malls and other brick-and-mortar retail on the endangered species list. And in this case, not only is Amazon investing millions in physical locations, but they don’t even play to the company’s obvious strengths. Rather than providing customers with access to Amazon’s legendary depth of inventory or its ability to curate best-selling titles by accessing its huge store of customer data, the kiosks feature a limited assortment of electronics and accessories, spotlighting Amazon’s own devices like the Kindle, Fire and Echo.”

But perhaps the most unique retail-centric perspective came to us from IHL’s Greg Buzek. He believes the pop-up stores will serve two purposes for the ecommerce behemoth:

  • Showrooms for the Amazon ecosystem. Much the same way Apple stores are showrooms as well as sales locations, Buzek says Amazon is using pop-up stores as a gateway into the Amazon ecosystem.
  • Return centers for Amazon.com products. Buzek believes the most challenging part of ecommerce for consumers is dealing with returns. “You’ve got the trip to the post office or UPS store, and the cost of shipping if the item is not covered with free return shipping. The pop-up locations can service returns for Amazon and for its consumers. Simply bring the item in with receipt, and they take care of it for you,” he stated.
amazon-pop-up-1What About The Little Guy?

So how will Amazon pop-up stores affect small-to-medium (SMB) brick-and-mortar retailers? Buzek thinks it could be a very good thing. “We’re at a tipping point with Amazon much the same way we were with Walmart in 1990. Walmart had four Supercenters back then, but by 2000, it had over 3,000 – which decimated small retailers. Amazon, on the other hand, is going after the large retailers and enabling the SMB players. Those smart enough to jump into that ecosystem have a huge opportunity.”

He provided this example. If you found out that 70 percent of households making $112K or more all moved to one city, wouldn’t you want to have a store there? “That’s the opportunity for retailers. Those that take advantage of Amazon’s channel have great opportunities. On the flip side, those who only look at Amazon as a competitor will be in big trouble. Retail has always been about location, location, location. In digital, that location is Amazon.com.”

He makes an excellent point. While many SMB retailers are debating “To Sell Or Not To Sell On Amazon,” others are going for it. There may be big benefits and unpredictable pitfalls in selling on a colossal marketplace like Amazon, but its doors remain open to SMB retailers in unprecedented ways. Whether or not SMB retailers would do the same for Amazon if ever given the opportunity to reciprocate remains to be seen.

Flipping the page, can you imagine an Amazon pop-up shop inside a Walmart? The cut-throat competitors are not likely to cozy up anytime soon. Just typing it seems ludicrous.

But lest we forget, Amazon is relentless, which means boundaries weaken and the unthinkable manifests wherever it chooses to go. Pause for one second. Amazon just shipped 35 items in that time frame. And probably just opened another pop-up store in a mall near you. What happens next remains to be seen, but one thing is crystal clear. The world will be watching.