On Amazon’s Retail Strategy

Jason Del Rey, reporting for Recode:

Amazon will indeed open up more bookstores, but it also plans to eventually unveil other types of retail stores in addition to bookstores, according to two sources familiar with the plans. It’s not yet clear what those stores will sell or how they will be formatted, but the retail team’s mission is to reimagine what shopping in a physical store would be like if you merged the best of physical retail with the best of Amazon.

Ben Thompson, in a members-only post, on the news:

The obvious advantage of physical retail is that you immediately get what you need instead of waiting for it to ship, but I actually don’t think that’s the play here; Amazon would rather speed up the delivery process. That scales to more people and keeps with the company’s advantage in selection and price.

Another advantage of physical retail is the ability to try various products out. However, this advantage in particular seems orthogonal to Amazon’s inventory advantage: one store can only hold so many items.

Thompson says Amazon’s play is not walking out of the store with your purchase in hand, and I agree. I think Amazon wants to give people a place to see, in person, what they’re considering buying online.

Consider this, from a members-only post from Ben Bajarin:

I recently did a project for a larger consumer electronics company who depends heavily on US retail. While the focus of this research project was not how people research and come to conclusions around the buying process online, I snuck in a question about it. What I quantified was a stat I already knew. 80% of consumers research online before they buy. The nuance of the next question I added brought deeper clarity. I then asked consumers whether their mind was made up solely by the research they did online or if they went in to a store educated but waiting to make up their mind on their final decision. Surprisingly, only 31% of consumers said they walked into a retail store with a definitive decision in mind for their tech-related purchase. The rest were still ready to be swayed or were looking at several products at one time, and were going to make the final decision in store. Alternately, they could showroom and go back online and buy it once seeing it in store. Bottom line, the retail presence still has value in the decision-making process.

Here lies Amazon’s strategy. The book angle is just the start or a cover to a larger, new type of retail experience that focuses more on showcasing technology than pushing sales of technology at the retail endpoint.

Bajarin’s last sentence hits the nail on the head — Amazon wants to showcase some of the products it sells on its website in order to convince people to buy them.

I’ll take it a step further, though. Amazon wants its retail stores to nudge people into buying products, yes, but Amazon’s stores will focus on shipping you what you order. While this may sound crazy, other companies actually have similar strategies.

One example is Bonobos, the clothing company. When it was founded in 2007, the company sold its clothing exclusively online. But in 2012 it began opening stores called “Guideshops” where you can try on clothes but not buy them. Bonobos doesn’t keep in-store inventory. Rather, it has a warehouse (or multiple warehouses) it ships orders from. In Guideshops you figure out the size of your clothing, decide what color you want, and then Bonobos ships you your order.

I think this is similar to what Amazon will do. You’ll be able to buy smaller products (e.g. a cell phone) in its stores, but in many cases, you’ll decide what you want in the store and then Amazon will ship it to you.

Imagine this: You go to an Amazon store on your lunch break, you decide to buy a TV, and by the time you get home from work, your TV has been delivered — for free, since you have Amazon Prime.

Or imagine this: On Friday night you’re home with your significant other, your two year old daughter, and your newborn son when your small, ancient computer monitor stops working. On Saturday morning, you all go to the Amazon store. You decide what size monitor you want, order it, and then run the rest of your daily errands. And by the time you get home, your new monitor is there. (Again, for free, since you have Amazon Prime.)

You, the customer, don’t have to carry something heavy when you leave the store, yet you receive the product on the same day.

In each of these examples, not only does Amazon’s incredible distribution network make its customers’ lives much easier, but it does so in a way that arguably no other company can. I don’t think any other retailer can offer free same-day delivery at scale.

In the original Recode report on Amazon’s retail strategy, Jason Del Rey writes that Amazon wants to merge “the best of physical retail with the best of Amazon”. This is how you do that.