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Does Amazon Have Physical Stores In Store?

ZDNet has some more speculation on the possibility of Amazon opening physical stores, sparked by the recent announcement Wal-Mart would no longer be carrying Amazon’s devices. Wal-Mart, ZDNet thinks, fears Amazon’s increasing dominance in retail through the “mobile cash register” of its tablet, and doesn’t want to put itself in the position of helping its competition.

The article quotes a Reuters article speculating, though the Reuters article actually doesn’t do much more than say Amazon might do it. And people have been saying that for months now, ever since Amazon started capitulating to the states demanding that it collect sales tax within their borders. If Amazon has to collect sales tax in a state anyway, it might as well add physical facilities there as well, not least because they can be such handy things when it comes to receiving deliveries of things ordered on-line. (I had an $18 Amazon package of ballpoint pens stolen from my doorstep a couple of weeks ago. Where’s an Amazon Locker when you need it?)

Do I think Amazon will come out with physical stores? Perhaps, eventually. I don’t know if they’ll ever be as ubiquitous as Wal-Marts or even Barnes & Nobles, but then again you don’t exactly see an Apple Store on every street corner either. Amazon has demonstrated some fairly creative ways of using other forums to drive commerce to its digital stores. Case in point: it recently came out that the next version of Ubuntu Linux will feature Amazon affiliate links in its desktop search, as a way of driving some affiliate revenue for Canonical while ostensibly providing more useful search results to Ubuntu users.

A common argument I hear against the Amazon store idea is that it’s very very difficult to have physical stores turn a profit in this day of on-line shopping. Just look at what’s happening to Best Buy right now. Amazon is supposedly much too canny to pour its money down a hole like that.

But on the other hand, Amazon has done some pretty-crazy-seeming things before—like giving away “free” two-day shipping on anything for just $79 per year as part of its Prime program, then adding streaming movies, an e-book lending library, and other benefits to the program, or selling best-sellers hand over fist at a loss of several dollars per e-book in order to build out its e-book platform. And yet far from being derided (except by people like this fellow who seems absolutely positive that Amazon continuing its Prime program is a sure sign the company is about to go to the dogs and insists this means it’s time to short the stock), it’s universally feared for its incredible competitive savvy by every major publisher and bookstore owner in business to the point where Apple and five of the Big Six (allegedly) had to foment an illegal conspiracy in order to keep the big bully under control.

If Amazon can figure out how to make physical stores increase overall revenue more than they cost to operate the bricks and mortar, it’s a sure bet it’ll put up exactly as many of them as it takes to maximize those benefits. I’m almost positive they have armies of bean-counters working secretly behind the scenes even now, crunching numbers and sliding beads on abaci to work out exactly what the best strategies for stores would be and where to put them.

It will be interesting to see what happens if Amazon stores start coming to town…

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sarah September 24, 2012 um 10:00 pm

I read on Good e-Reader like months ago this was going to happen. You just catching up?

Nate Hoffelder September 24, 2012 um 10:20 pm

One, with that story that blog copied another site without giving credit (something they do a lot), so they don’t exactly have a lot of credibility.

And two, I don’t believe this current rumor any more than I believed the rumor the last time around. It’s bunk. And I’ll bet $10 on that.

Richard Adin September 25, 2012 um 6:11 am

You’re being chintzy with your bet, Nate. Mitt would have done at least $10,000. Shouldn’t you do the same? 🙂

BTW, it is worth reading together the Seeking Alpha article cited in the above article and the article cited in today’s interesting posts. I’m not sure whether I agree or disagree with the analyst, but it sure makes interesting reading. If he is correct, then the days of Amazon’s steep discounts in ebooks may fade into memory as a result of investor backlash.

fjtorres September 24, 2012 um 10:25 pm

The thing to keep in mind is that there is no reason to expect Amazon B&M stores to be operated in any way that resembles other companies' stores.
I wonder if Amazon might not bring back the showroom store of the 70’s.
After all, that is what their opponents are most whining about. So if Amazon combines a small showroom facility with in-store ordering kiosks, delivery lockers, and select traffic-generation inventory (bestseller pbooks, phones, DVDs, TVs, ebook readers and tablets…) they could easily generate enough income per square foot to justify the stores. And they wouldn’t have to be much bigger than a typical Payless or Radio Shack since their stock could be delivered daily from the same regional distribution centers serving the online operation.
All they would need to make it work is exquisite logistics and inventory management–which they already have.

Nate Hoffelder September 24, 2012 um 11:37 pm

The other thing to keep in mind is that the operation costs for a retail store is much higher than that of Amazon’s warehouses on a square footage basis. That, and the fact that no one has actually explained why Amazon would need a retail store or provided a compelling argument for the benefit outweighing the cost.

Oh, and Amazon likely doesn’t have the funds to launch a retail operation:
Amazon’s Imminent Liquidity Crunch And Share Price Collapse – Seeking Alpha

Chris Meadows September 25, 2012 um 12:15 am

Amazon’s given money away in one place to make it elsewhere in the past. If they lose X amount of money on a physical store but make 2X or 3X back in increased on-line orders from having those stores, was it such a bad investment?

Nate Hoffelder September 25, 2012 um 12:35 am

True, but in thsi case you are assuming Amazon will make the money back. Can you justify that assumption?

fjtorres September 25, 2012 um 6:31 pm

No. I don’t have access to their books. 🙂
But just because the storefronts may cost more to run than their warehouses doesn’t make them automatic money losers. I did say I expected them to run their stores differently than other retailers. 🙂
The first benefit that comes to mind is the lockers. Amazon is paying 7-11 and other locker hosts to let them base the lockers there.
The second benefit is reaching out to people who *don’t* buy online.
The third benefit is control over showrooming; obviousl they won’t stock everything they stock online but what they do showcase will see extra sales which can bring in stocking "coop-marketting" revenue.
Amazon has shown themselves capable of squeezing revenue out of places others consider costs so I wouldn’t automatically assume they can’t make a go of B&M stores.
Now, this doesn’t mean they’ll be setting up 7000 stores all over the country, but a couple of dozen in the top 10 metropolitan areas? It works for Apple and Microsoft seems to be doing fine with *their* stores…

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