Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

It seems silly for a company born in cyberspace to risk the mortal combat of physical stores, where profit margins are pitiful and annoyances are high. Yet Amazon.com, the world's biggest online retailer, has its eye on opening perhaps 300 to 400 physical bookstores, according to the CEO of a big mall owner.

Even if the stores don't materialize on that scale, Amazon will still be far more bricks and mortar than people generally imagine. Amazon has about 120 million square feet of merchandise warehouses and computer data centers around the world -- roughly the equivalent of 700 Wal-Mart supercenters. Amazon is opening company store-plus-mailroom centers on college campuses, and it is adding to its network of small warehouses to help with a fledgling service delivering toothpaste and batteries in a couple of hours in some cities.

Bricks-and-Mortar Blues
Online sales are less than one-tenth of U.S. retail sales. Yet e-commerce is growing quickly while overall sales growth is slow for all retailers.
Source: U.S. Department of Commerce
Figures for 3Q 2015 are preliminary estimates.

It’s fair to say few people truly know what Amazon’s goals are with its physical stores. To believe in Amazon is to give it the benefit of the doubt when it pursues projects that seem ill-advised or out of character. Often the odd ideas pan out -- as computer services rented by the hour became the successful Amazon Web Services operation. Sometimes the fliers Amazon takes crash and burn. See, for example, Amazon’s Fire smartphones.

Amazon has been tiptoeing into stores since last fall,  when it opened a bookstore a short drive from its Seattle headquarters. In most cases, Amazon doesn’t need a physical showcase for its wares. The company is leaping ahead even as traditional retailers are finding e-commerce is much harder than Amazon made it look.

But as Amazon expands its in-house electronics line from just its Kindle readers into full-fledged tablets, TV set-top boxes, digital assistants that can order pizza and computers in the kitchen, perhaps the company is finding it needs to show people in person how Amazon hardware works in tandem with its shopping and digital media offerings.

In the Amazon Seattle store, for example, the selection tilts more toward Amazon gadgets than to books. Bloomberg’s Spencer Soper reported store shoppers can ask Echo -- Amazon’s voice-activated speaker -- to read aloud the electronic books sold on Amazon. (Don’t worry, moms and dads. Echo’s creepy computer voice won’t displace you from bedtime story duties.) 

Physical stores may also be part of Amazon’s solution to its thorniest problem: Merchandise bought online still needs to travel through physical distribution networks. And that is a slog. Small Amazon inventory hubs have been a central plank in Prime Now, the service to deliver some goods to Prime members in one to two hours. If at least some Amazon stores also serve as centralized package pickup centers or warehouses to stow inventory closer to shoppers' homes, it could ease burdens on Amazon's overloaded distribution networks

There are existing models for this approach. Amazon has deals with dozens of places to host Amazon Lockers, which are mini package pickup centers in spots like convenience stores and parking garages. Amazon will also have this year more than a half dozen physical stores on university campuses, to serve in part as de facto package pickup centers for students who make Amazon purchases. The University of Pennsylvania said it found almost half of all packages in its student mailrooms were Amazon deliveries.  

Having more centralized package pickup spots is especially useful in urban areas where people may not be able to have items delivered while they are away from home. Existing apparel retailers and big box stores like Best Buy are already making their stores and e-commerce work hand-in-hand by letting people buy online and pick up in stores, or check out items in stores and then order online. 

Breaking the Spine
Shares of book retailer Barnes & Noble fell sharply after news circulated about Amazon's possible store plans.

Every time a technology company wades into brick and mortar, inevitable comparisons are made to Apple and its highly successful chain of retail stores, which started opening in 2001. In the 12 months ended in September 2014, Apple sold more than $21 billion worth of merchandise in its retail stores, or 12 percent of the company total sales in that period.  

Amazon and Apple are different animals, of course, and that makes stores less of an obvious foray for Amazon. Yet Apple stores turned out to be an important place for the curious to try unfamiliar Apple products and new ideas like digital music and smartphones, plus highly visible symbols of Apple's coolness to build consumer loyalty. If Amazon can borrow from those goals -- plus get help with its physical growing pains -- then stores are a flier worth taking. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Apple has stopped disclosing its retail store sales. The same mall owner who said Amazon might open hundreds of stores also said Apple store sales were losing steam. It’s unclear if that may reflect soon-to-decline sales of the iPhone rather than a particular problem with retail stores.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net