Last week, when Sandeep Mathrani, CEO of Chicago-based General Growth Properties (GGP), said that online retail giant Amazon plans to open 300 to 400 physical bookstores, he let loose a flurry of speculation. Is the company that built its fortunes on the Internet while threatening the brick-and-mortar store model recasting its business strategy? Or does Amazon have something more exciting and experimental up its sleeve?
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Nonetheless, the ensuing debate on Amazon’s future has centered on how the e-commerce giant could use technology and data analytics to create a new experiment with brick-and-mortar stores. Wharton management professor Daniel Raff said it was “clear from industry gossip that [Amazon is] contemplating a rollout of stores” and that there were “hints at clever new technology in these stores.” However, “the bigger question is: Why they are thinking of [doing] it?”
According to Amanda Nicholson, professor of retail practice at Syracuse University’s Whitman School of Management, Amazon may be “trying to redesign a new kind of store and move into brick-and-mortar, utilizing its own technological and data brilliance.” She noted that Amazon has an “extraordinary supply chain” and that it has “built [its] name on how to get stuff to us very inexpensively and very quickly.”
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Raff pointed to Amazon’s lone physical book store in Seattle to glean some insights into the company’s thinking. He noted that the store occupies a tenth of the floor area of a former Barnes & Noble store at that location, and has a “highly curated” selection of books that seem to cater to “local interests” such as those of campus walk-ins from the nearby University of Washington and suburban residents. “All books are displayed face-out unlike in other bookstores, and most significantly, they are sold at online prices,” he said. “Everything appears to be at a discount relative to what it would be at an ordinary bookstore.” The store also sells Amazon’s Kindle e-reader and its Fire Phone, he noted.
Raff drew two insights from that model. “One, it doesn’t seem to be [about] just books, but also participation in the Amazon ecosystem,” he said. “The other is, they are in a position to stock and promote these stores quite inexpensively. That is a competitive edge relative to new brick-and-mortar stores.”
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Nicholson noted that Amazon is not trying to replicate a Barnes & Noble but attempting to do something different. Expanding on Raff’s observation about the highly curated collection at Amazon’s Seattle store, she said that space represents “a test” to see if Amazon can create “a new kind of experience” using data analytics about customers’ preferences.
However, “were [Amazon] able to give a coup de grace to Barnes & Noble,which has been appearing troubled in recent months,” that would certainly benefit Amazon because there would be less pressure on pricing, Raff noted. Also, by adding brick-and-mortar “depots,” Amazon could realize savings in its profit-draining cost structure of shipping to individual customers, he added. If Amazon could send large shipments to locations where customers could pick up their orders, the firm would be “ahead of the game in terms of shipping costs,” he said. The company could also convert customer visits into sales of other merchandise.
Link to the rest at ValueWalk