Friday 27 April 2018

Amazon gets physical in battle for sales but shift not guaranteed to work

Another Angle

Amazon spent $13.7bn to buy the US Whole Foods supermarket chain and has invested in other bricks-and-mortar outlets
Amazon spent $13.7bn to buy the US Whole Foods supermarket chain and has invested in other bricks-and-mortar outlets

Shira Ovide

Soon it will be an anachronism to consider Amazon solely a virtual shopping centre.

Sure, Amazon instantly transformed itself into a physical retailer with its attention-grabbing, $13.7bn (€11.4bn)purchase of the US-based Whole Foods supermarket chain. That deal delivered Amazon more than 450 stores to sell groceries, potentially stow merchandise for online deliveries and other yet-unknown strategic possibilities.

But beyond Whole Foods, the company has been cobbling together a large physical footprint from university campuses to department stores such as Kohl's the US-based home and clothing retailer.

These thousands of Amazon outposts help the company with two problem areas. Firstly, sometimes people want to browse, shop or pick up purchases in person. Secondly, package delivery networks are strained by Amazon's ambition to fulfil shoppers' desires instantly.

Amazon.com's rapidly expanding physical footprint must spook companies that sell the old-fashioned way. But take heart, retailers. Amazon's approach also validates your business model.

The king of internet commerce is acknowledging that a physical footprint matters and people will come to stores if it's a convenient experience, or if they sell things people want to buy.

The latest in Amazon's shift away from pure e-commerce is a partnership with Kohl's. Amazon said earlier this month that 10 Kohl's locations in the American metropolitan areas of Los Angeles and Chicago would open stores-within-stores for Amazon's electronics and home-improvement services.

On Tuesday, the companies said 82 Kohl's stores in those same cities were becoming return hubs for merchandise bought from Amazon. The stores will box up people's unwanted Amazon merchandise and handle the shipping back to the company free.

Buying Amazon gadgets in Kohl's is not a natural shopping behaviour. But turning Kohl's stores into de facto Amazon return centres can benefit both companies. Kohl's is hungry for more foot traffic to its stores and this arrangement could deliver that. Plus, Kohl's said last year that when shoppers spend $100 on a Kohl's online store pickup order, they spend, on average, $25 on other merchandise when they visit the store to retrieve it.

Sure, we can't assume that someone making an Amazon return will be as seduced by Kohl's racks of decorative pillows and workout attire as the people who use the store's pickup service. But it offers insight into what the opportunity is for the retailer: if Amazon customers are greeted by alluring merchandise and appealing price tags, Kohl's could drum up some sales.

For Amazon, although returns are a drag on its bottom line, making them easier may compel people to shop more. That's also one of the motivations for the Prime Wardrobe option the company started testing in June. Customers can order multiple items of clothing, shoes and accessories from Amazon, try them on at home and pay later for only what they decided to keep.

It's remarkable to track Amazon's rapid-fire march to expand its boots-on-the ground for shoppers. The company opened its first bookstore in late 2015 and now operates 11 of them to sell print titles, Amazon electronics and serve as beacons for the benefits of the company's Prime shopping club. The New York Times has reported that Amazon is considering stores that might sell furniture and home appliances. Both are big-ticket items that people tend to like to see or try before they buy.

Amazon also opened its first staffed store on a college campus in 2015; now more than 15 Amazon outposts in or near US universities function as retail stores or package pickup spots.

The company seems to be expanding its college mission to let locals use those Amazon spots to pick up spur-of-the-moment Amazon orders like snacks or phone chargers.

Amazon also has more than 2,000 of its Lockers, which are locked mailboxes in public places such as convenience stores that allow people to have Amazon orders delivered if their homes aren't a good option for packages.

Amazon's physical expansion shows how much the company needs to change to take on its next challenges.

The future shopping categories Amazon hopes to dominate - groceries, clothing, appliances and more - will require a mix of physical stores and online shopping and hybrids of the two. The delivery logistics are tricky, too.

Branching further away from its core strength - going from one-click purchase to doorstep lightning fast - gives Amazon a shot at grabbing an even bigger chunk of shoppers' wallets.

But it also creates opportunities for the ecommerce pioneer to fall on its face. (Bloomberg)

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