This article about Amazon Physical Stores was co-authored with students from the Digital Major of HEC Paris Masters in Management, promo 2022. During the course, students have to learn how to optimize and create content to be published. For this, they dive into the trends impacting retail and e-commerce, and only a select few are published in the blog.
We want to give our special thanks to Pablo Marcote & Ricard Codina, the two students who co-authored this post.
Sometimes, big isn’t big enough. For Amazon, the world’s most significant e-commerce player, the online world isn’t enough to contain its ambitions.
Amazon physical stores are part of the company’s well-planned entry into the retail landscape. And like everything it has touched, Amazon has all the expertise and financial punch to change the brick and mortar sector.
Shopping and Amazon are synonymous. But for a while now, it’s the company that’s been on a shopping spree.
This shopping spree is different from Jeff Bezos’s post-divorce purchases of a yacht that comes with another yacht or a mansion with a 9-hole golf course. No, this is about the company and not the new bachelor on the scene.
From Whole Foods to PillPack to Ring to Zoox, the online behemoth has acquired companies to build its portfolio, enhance its technological capabilities, and fuel its retail growth. As a result, its strategy is different from other online or big-box retailers.
What is Amazon’s physical store strategy?
The company has been rolling out Amazon physical stores to widen the horizon of its offerings in the retail sector.
Amazon Go, Amazon Go Grocery, Amazon 4-Star, and Amazon Lockers are only some moves to disrupt the market and enhance offline shopping experiences.
After redefining e-commerce, the company, it seems, is now about to redefine commerce as we know it.
Amazon Books, the company’s first venture into the traditional retail sector, was launched in 2015.
Starting in Seattle, it’s now present all across America. The Whole Foods acquisition followed suit. Then came Amazon Go, Amazon Go Grocery, and others. With Whole Foods, the company now has around 600 physical stores worldwide, divided as follows:
The strategy is to be an omnichannel marketplace instead of a single-channel seller.
After a testing phase opening Pop Up stores in 2018 following the acquisition of Whole Foods, Amazon has rolled out a complete physical strategy. However, the company is definitely not in the testing phase regarding its physical-store strategy.
For those interested in knowing, for example, where Amazon Go or Amazon Fresh is available, Amazon stores are mainly located in the US. They can be found in the following Amazon physical store locator. Nevertheless, Amazon plans to expand overseas, with the UK as a testing ground before a full-scale deployment in Europe.
But why the shift? Why is Amazon expanding to formats and delivery modules that are not in natural alignment with its traditional strengths? What’s prompting this retail expansion?
Seven reasons why Amazon is jumping to brick & mortar retail
1. The future of retail is omnichannel
Even though all the talk about the surge in online sales, especially the tremendous spike witnessed during the pandemic, offline commerce isn’t going anywhere.
That’s primarily because the offline shopper behavior of consumers is different from their online behavior. One is driven by experience while the other, by convenience.
This means that there aren’t exclusive groups of shoppers. Instead, most people prefer both kinds of commerce. What they want is a blend – and best – of both online and offline buying experiences.
E-commerce offers an exceptional choice of products, prices, and time-bound discounts that are difficult to find offline. In addition, Offline gives consumers a more immersive shopping experience that’s difficult to replicate online.
The tactile and sensory experience of being in a physical store adds a level of engagement that e-commerce can never compete with.
Amazon knows this and doesn’t want to be seen as just an e-commerce marketplace. They want to be where the customers are.
2. Gathering data on offline shopping behavior
Another reason for the launch and expansion of Amazon physical stores is the enormous data they give the online giant. But, unfortunately, while the company has the shopping data of millions of users, it doesn’t have much on offline shopping behavior.
The online shopping data, while significant, doesn’t tell much about the retail activities of consumers. This isn’t surprising as product search and discovery are different in both spaces.
By focusing only on one, Amazon would be missing out on a completely different set of customer insights.
The Whole Foods deal has to be seen in this context.
This deal gave Amazon detailed data on consumers’ consumption and behavior patterns of a well-established retail brand.
Importantly, it also allowed Amazon to club the benefits of in-store shopping with its Prime membership using refined consumer data.
In that sense, Amazon wasn’t acquiring Whole Foods. It was acquiring its customers.
3. Offline retail offsets shipping costs
Just because they’re a behemoth doesn’t mean rising costs don’t hurt them. Amazon, just like its customers, is always looking to save more. And when your shipping costs are around $61 billion a year, you want to bring it down.
With brick-and-mortar stores, customers would pick up their orders, significantly lowering the shipping costs.
They would also offer easy and inexpensive returns as customers themselves would be bringing back the products.
Also, whenever a customer arrives to either pick up or return a product, an Amazon physical store would be tempting not to check out.
They might find the product they were looking for or a similar one. This, without having to visit another store or open the app and search through several pages.
In other words, an Amazon physical store would double as a retail outlet and a pickup and return center.
4. Rising online acquisition costs
Customer acquisition is expensive whether you’re an independent online brand or the largest marketplace out there. For example, Amazon has to spend significantly on digital marketing to acquire and retain its customers.
And considering the competition and the choices a customer has, it’s a game they have to play repeatedly. As a result, the company has targeted millions of keywords and invested heavily in AdWords and SEO.
But with Amazon physical stores, there won’t be any need to spend to acquire customers repeatedly. Customers are loyal to their convenience or grocery stores and are unlikely to go out of their way to find a new one.
5. Physical store operations are ripe for disruption
If there’s one thing that Amazon’s famous for, it’s disrupting the models and markets it has entered.
And everyone knows that physical stores aren’t exactly known for their efficiency or ease of use. Legacy retailers have some legacy issues.
One could argue that nothing much has changed in the brick and mortar space over several decades.
It’s the same old process of customers locating the products on the shelves, picking them up, heading to a counter, waiting for the cashier to be free, and then checking out.
These are all friction points that Amazon hopes it will be able to solve with its technology.
Automated checkouts, cashier-less technology, and even staff-less stores are just some solutions already part of the Amazon physical store experience.
If those sound innovative, imagine the ability to pay with one’s palm! Now imagine that you can already do it at some Amazon physical stores.
6. A significant share of retail is still offline
Despite the growth of e-commerce, many consumers still prefer their offline shopping experiences.
Contrary to popular perception, online sales have been picking up. Still, they lag behind brick-and-mortar sales in most categories.
According to a PwC Total Retail Survey, 70% of consumers still prefer offline grocery shopping.
While this may not be surprising, what’s notable is that even for clothing and footwear and health and beauty, the majority still would instead buy them from a retail outlet.
So, since Amazon cannot comprehensively change customer behavior, it’s ready to expand its business model.
7. Growing the Amazon ecosystem
Amazon isn’t just the world’s biggest online marketplace.
It’s also an ecosystem of products and services that include everything. From Echo to Alexa to Kindle to payment services to probably self-driving cars in the future.
While the company encourages shoppers to seek its in-house solutions, a retail presence would speed up the process.
Consumers would be more encouraged to buy a Kindle or Echo when they see both in action. Once they roll out the grocery shopping through Alexa, it will elevate their retail game to a whole new level.
Importantly, all these are directed at growing Amazon’s Prime subscriber base. That membership would open up a world of omnichannel benefits to consumers. From shopping to entertainment, all enabled by voice commands.
8 Amazon physical store models you should know about
How has the omnichannel play from the largest e-commerce player worked out so far?
Here are the 9 Amazon physical stores through which the company hopes to revolutionize the retail landscape.
1. Amazon Go
Launched in 2018, Amazon Go relies on advanced machine learning to make shopping seamless for customers. For example, sensors on the shop shelves would inform the system what products a customer has picked up.
The best way to understand the convenience provided by the Amazon Go Concept is to watch this video:
The shopper doesn’t have to check out or approach any counter. Instead, they can head out of the store, and Amazon will automatically charge their accounts. This cashier-less technology is called Just Walk Out and will be explained further in the Amazon Fresh Store section.
This is an excellent example of breakthrough technology. And the company is using it to disrupt an industry notorious for its legacy inefficiencies.
2. Amazon 4-Star
Sometimes it helps to answer questions that no one has asked.
Customers never asked for the highest-rated Amazon products to be available offline.
But that’s precisely what the company did through Amazon 4-Star, which features four-star ratings or above products. These include books, devices, home products, and Echo, to name a few.
Consider it Amazon’s version of a Greatest Hits album.
3. Whole Foods
Whole Foods is perhaps the most high-profile acquisition (before the recent MGM purchase). It was Amazon’s most compelling move to enter the brick and mortar space.
With Whole Foods, Amazon wasn’t just getting close to 500 stores. It also got access to consumers who don’t mind spending extra on organic and sustainable food products.
4. Amazon Fresh Store
If Whole Foods is for more high-end and health-conscious customers, the Amazon Fresh store, previously known as Amazon Go Grocery, is targeted at those consumers who are used to shopping at Walmart or Target. The stores stock a wide variety of products beyond the healthy staples found at Whole Foods.
One of the main innovations implemented by Amazon in its physical stores focuses precisely on Amazon Fresh stores, with the new Just Walk Out shopping technology. Customers opting for the cashier-less technology can use Amazon One to scan their palms, use the QR code with their Amazon app, or insert a credit card linked to the Amazon account. The technology enables Amazon users to shop, pick up the desired items, skip the checkout process, and leave the store freely.
Does this mean that only Amazon users can shop at these new stores? Absolutely not. Anyone can shop at Amazon Fresh, whether using Just Walk Out or the traditional checkout lines paying by cash or a credit card.
5. Amazon Bookstores
No one forgets their first love. And for Jeff Bezos and Amazon, it’s always been books.
Launched in 2015, there are around 25 Amazon Bookstores in the US where customers can enjoy the tactile pleasures of touching and taking in that exquisite aroma that can only come from books.
6. Amazon Lockers
This is one of the finest ways in which Amazon is merging its online and offline brand experiences.
Amazon Lockers can be found in grocery stores, malls, and apartments. After ordering, customers will get a unique code to open the locker and get their product.
Whole Foods has Amazon Lockers which encourage customers to browse their products when they arrive to take their delivery. This is the kind of synergy that Amazon hopes to see across its Amazon physical stores and product portfolio.
7. Amazon Pop-Ups
These are Amazon’s take on casual pop-up stores.
The intent is to make it easy for customers to quickly browse trending products unavailable in stores through interactive displays. Unfortunately, in 2019, Amazon decided to close all its pop-up stores, terminating the experiment.
Nevertheless, later in 2020, Jeff Bezos communicated the strategic decision to reopen the pop-up tests to better understand the physical customer experience and leverage the new data gatherings.
8. Hair Salons
Yes, we, too, were surprised. But at its only location in London, customers can use augmented reality mirrors to know how a style or hair color would look on them.
They will also be given Amazon Fire tablets to entertain themselves. But, of course, they can also buy any cosmetic or beauty product by merely scanning a QR code.
We’re not saying it isn’t a riveting success, but the company doesn’t have plans to open more salons.
Amazon physical stores are the next stage in the evolution of a company with unprecedented domination in one space.
As they get popular, customers would also expect such tech-enabled services from legacy retailers.
It will also emphasize the divide between traditional big-box outlets and a technology-first company like Amazon, precisely what the company wants through its brick-and-mortar stores.
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