Member Exclusive   /   March 8, 2019

Cheatsheet: Everything you need to know about Amazon’s evolving retail strategy

Amazon announced yesterday that it’s shutting down all of its pop-up stores, as its brick-and-mortar strategy continues to evolve.

These kiosks — found in malls, Whole Foods and Kohl’s stores — were remnants of the days when Amazon didn’t have a physical retail strategy. Now, Amazon said that it will be focused on Amazon Books and its Amazon 4-star stores going forward. But that’s not all the e-commerce giant has up its sleeve in offline retail, and as a result, the trillion-dollar retailer’s budding brick-and-mortar business has begun to sprawl.

Physical stores are one of Amazon’s only weak spots. Retailers like Home Depot, Target and Kroger have been using their networks of hundreds of stores to play defense against Amazon by giving customers the option to buy products online and pick them up in-store — which some prefer to delivery. And while Amazon’s offline strategy was initially defined by gimmicks, like cheekily displaying Echo smart speakers in Whole Foods stores with the caption “farm fresh,” the retailer is getting more serious about permanent stores, as it’s rumored to open up hundreds of grocery stores and convenience stores across the U.S. in the next few years.

It’s important to keep tabs. Here’s everything you need to know about Amazon’s evolving retail strategy.

Key numbers: 

87: Number of pop-up kiosks that Amazon is closing

19: Number of Amazon Books stores

3: Number of Amazon 4-star stores

10: Number of Amazon Go stores

3,000: Number of Amazon Go stores the company is rumored to open up by 2021.

497: Number of Amazon-owned Whole Foods grocery stores in North America and the United Kingdom.

Wait, Amazon had pop-up stores?
Yes, Amazon has had pop-up kiosks since at least 2013. Amazon simply needed a space for consumers to discover and try out its Kindles — and later its Echo smart speakers — which it had sold online up until that point. And because it had never opened up a physical retail space up until that point, it needed a low-cost way to figure out how much square footage it would need for brick-and-mortar, and what type of layout and store design consumers would respond to. It went to places that at the time, had a lot of foot traffic, most notably malls.

“They were on a mission — as they still are — to throw as many darts as they could, knowing that they would fail plenty of times and test many initiatives,” said Simeon Siegel, a retail analyst at Nomura Instinet.

The star players: Amazon Books and 4-star
In opening more book stores and 4-star stores, Amazon is both returning to its roots, and creating next-generation retail spaces that reflect those roots.

Amazon opened its first Amazon Books store in 2015, much to the chagrin of booksellers that had already been hit by its online business, like Borders and Barnes & Noble. With its bookstores, Amazon for the first time was able to take the data it had on what types of products were most popular and use that to curate a physical store.

Amazon’s 4-star stores, which first opened last year, take that idea a step further, by carrying the most popular products on Amazon, across among multiple categories and brands, and the inventory is turned over weekly. Siegel describes it as a “supercharged gift store.”

Both Amazon Books and Amazon 4-star have digital price tags, that reflect the price for customers who are members of Amazon Prime, and those who are not.

Melissa Gonzalez, founder and CEO of experiential agency The Lionesque Group, said that both stores are good examples of how Amazon is using data better than other companies to provide a more comprehensive customer experience and broader selection.

“It’s a great example of how most brands and retailers should attack merchandising,” Gonzalez said. 

Amazon said yesterday that it plans to open up more book and 4-star stores, but it hasn’t said exactly how many. Amazon only has these types of stores in a few states, so there’s plenty of room to grow this concept.

Keep tabs on grocery
Since acquiring Whole Foods in 2017 for nearly $14 billion, Amazon has been slow to make its ambitions known. Aside from giving discounts to Prime members who shop at Whole Foods, and integrating its on-demand delivery service Prime Now into Whole Foods stores, Amazon hasn’t made many public-facing changes at Whole Foods.

But as with all of Amazon’s other retail ambitions, its Whole Foods stores gives the company plenty of data and a large footprint to learn from should Amazon decide to open up its own grocery stores. According to the Wall Street Journal, Amazon is planning to open dozens of grocery stores across the U.S. as soon as this year.

Grocery is a really good place for them. We all know Amazon is held to a different set of standards — they don’t have to make money the way other companies do,” Marshal Cohen, NPD Group’s chief industry adviser said. “It’s a very low-margin business — but it’s the most frequently purchased product category.”

Amazon’s cashier-free store, Amazon Go, also straddles the company’s grocery ambitions. Amazon Go is giving Amazon the chance to experiment robustly with the checkout process, and take those learnings into larger grocery stores should they open them. But Amazon’s Go plans may be in jeopardy, as more cities consider banning cashless stores.

Speaking of Go…
Bloomberg first reported last year that Amazon plans to open as many as 3,000 Amazon Go stores over the next year — which would make it Amazon’s most aggressive expansion into brick-and-mortar ever.

The rapid expansion plans may be explained by the fact that Amazon is reportedly experimenting with turning Amazon Go stores into grab-and-go lunch sports for urban workers, by only carrying prepared foods at some locations. That makes them less expensive to operate than if they carried fresh foods. And that way, one kitchen could serve many stores. 

Are they doing too much?
Amazon has the ability to experiment more than other retailers, given that they made $3 billion last quarter. But if they spend too long iterating with smaller, next-generation retail formats, and not enough time expanding their physical footprint, that could give competitors in categories like grocery an advantage. They’ll have more time to figure out their online delivery and click-and-collect strategy — an area that no one’s really been able to figure out a winning blueprint in yet.

And there’s plenty that Amazon still hasn’t done in physical retail — Cohen sees an opportunity for Amazon to push its private-label brands in stores, for example — something it hasn’t really done up into this point.

Expect Amazon continue to throw more darts as it charts its retail strategy.

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