Is Amazon planning to build high street shops?

Apparently Amazon isn't content with online only retail and wants to set up shop in New York, literally. But is that a good idea?

by Adam Gale
Last Updated: 24 Oct 2014

E-tail colossus Amazon is going to open a brick and mortar shop opposite from the Empire State Building, according to a report by the Wall Street Journal. Citing unnamed sources (those guys get everywhere), the report said the store would be open in time for the insanity of New York Christmas shopping. Amazon, it should be noted, has refused to comment.  

Hold on a minute, you ask. Isn’t Amazon the internet beast that savaged the high street with its low prices and near-infinite range? Isn’t its business model based on not having to run actual shops with pesky costs like city centre rents and sales assistants’ salaries?  

Yes and yes. But Amazon is also relentlessly expansionistic. It started off only selling books, remember. Owner Jeff Bezos has transformed the site over the last fifteen years into an online bazaar flogging wares from electronics and toys to home gyms and spare tyres, and he’s not stopped there. It’s also set up a (small) physical presence on the high street, with its Kindle vending lockers.

Amazon’s latest incursions have been into the realms of smart phones and tablets on one front with its Fire range, and same day grocery deliveries on the other, with its AmazonFresh service. Taking on the likes of Apple, Samsung and Walmart at the same time is no easy task, however, and this is where the physical store might come in.

AmazonFresh grocery delivery vans could become a familiar site across the US.

Phones and tablets, for instance, are expensive items to buy without actually holding them in your hand and trying them out. Users also tend to stick with the brands they know. If Amazon had physical stores like Apple does, consumers would get a chance to experience a Kindle Fire for themselves.

At the same time, an Amazon store would serve as a marketing platform and mini-warehouse for its same day delivery service, AmazonFresh. Groceries are perhaps the biggest retail market that Amazon has yet to conquer. The reason, of course, is that people don’t want their dinner delivered in the next 2-5 working days – they want it now, and Amazon’s vast out of town warehouse network simply isn’t designed to accommodate that.

The e-tailer has expanded its version of Ocado from Seattle to California last year and is likely to expand the service across the United States if it works well there. An Amazon store could provide a convenient same day pickup venue as well as prime advertising for their same day delivery service. It would also provide limited capacity as a warehouse for such deliveries.

A store showcasing its smartphones and tablets is a smart move if it wants to get into that space, but Amazon might have bitten off more than it can chew if it wants to take on massive retailers like Walmart.

The Amazon advantage comes from its low cost distribution network, which cannot continue to be low cost if its warehouses are in the middle of major global cities. It can enter that market but there’s no reason to believe it can conquer it.   

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