Amazon’s Move to Brick and Mortar: Surprising but Strategic

Amazon’s recently announced foray into brick and mortar bookstores has startled many, including Jay Somaney, a Forbes contributor who stated, incredulously, “Besides the massive additional CapEx that will be required (leased or purchased locations, labor, overheads, inventory, etc.), Amazon has spent almost two decades competing with the brick and mortars of the world (Walmart, the Barnes and Nobles) and now they want to join the ranks of the very companies they are beating up on?”

But the retail behemoth has plenty of sound reasons to experiment with a physical presence. Here are the top five ones that we have analyzed.

1.Filling a void, strategically.

As Somaney observed, Amazon is largely responsible for the decline of retail book sales. Now, the company is strategically moving to fill that niche. Amazon will select books for selling in stores based on their rank in its user-review system as well as data from pre-orders, sales, popularity on Goodreads, and their curators’ assessments. As Amazon Books VP Jennifer Cast stated, “We’ve applied 20 years of online bookselling experience to build a store that integrates the benefits of offline and online book shopping.”

2. Ability to Touch and See Products.

Amazon wants to appeal to those customers unwilling or unable to purchase online. Book buyers appear to be reluctant to give up shelf browsing: the New York Times recently reported that independent booksellers experienced sales growth in many parts of the country. John Mutter, editor in chief and co-founder of Shelf Awareness, mentioned, “There are all kinds of studies that show the best way to find things when you don’t know what you’re looking for is an old-fashioned bookstore.”

Additionally, customers particularly like to test electronic products before purchasing, and Amazon offers hands-on experiences with products such as the Kindle Fire tablet in its flagship Seattle store.

3. A Unique Experience of Brand Connectivity.

In a 2014 report, the consulting firm AT Kearney noted that despite smartphones, social media, and same-day delivery, 90% of all retail sales are still captured in physical stores: “Physical stores are quietly evolving through the integration of digital innovations, ultimately vying to offer consumers a try omnichannel retail environment.” Experiences in physical stores remain a cornerstone of consumers’ shopping journeys. Customers’ perceptions of brands are often shaped by their interactions with sales representatives, as well as the physical layout and sensory ambiance of retail environments, which computer and smartphone screens can’t offer.

4. Blending of Physical and Digital Worlds.

Amazon’s impact on brick and mortar booksellers has been extensive but even Amazon recognizes that online retail has not obliterated physical stores. Rather, it has simply changed the way physical stores must sell their products. “Clearly, a strategy based on leveraging the appeal of the physical store supported by digital is the best formula for capturing the number of sales, building sustainable customer loyalty, and creating opportunities to cross-sell,” explains the AT Kearney report.

Furthermore, Amazon’s step into physical sales reflects how customers already think and shop. According to an HBR article by Amy Bernstein:

“Customers weave the physical and digital worlds together seamlessly and they want business to do the same. They expect to pay the same price for a TV at Acme Appliances that they’d pay on… Digital technologies are transforming physical businesses — not annihilating them. Thus, the Amazon move makes a little more sense. As others have noted, digital retailers like Warby Parker and Bonobos have already opened physical stores.”

5. To Learn Beyond Book Sales.

Amazon has a reputation for extending itself into many areas of retail and services, from book e-commerce to cloud servers to Amazon-branded hardware. 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.” Bookstores could be the perfect stage to perfect its expertise in processes and gain even more knowledge about sales and consumer behavior. In a Denver Post article, Sucharita Mulpuru, an analyst with Forrester Research, said the store appears to be an experiment to see what the company can learn. “If they sell books, awesome. Even if they don’t sell books, there’s a lot to learn about how people discover products, how they shop for products.”