Why Amazon, E-Commerce’s Top Player, Is Opening Physical Stores
Amazon already dominates the digital world, so why are they experimenting with IRL stores?
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Amazon is on top of its game. Shares for the e-commerce juggernaut recently broke $1,000 for the first time ever and the company has made headlines with the announcement of discounted Prime memberships for low-income households—a move that appears to be a strike against the world’s biggest retailer, Walmart, and other discount retailers like Dollar General.
On top of all this, Amazon is continuing to experiment with physical stores—something it has been doing since 2015—with the opening of a first New York City location in Columbus Circle. Amazon has plans to open a second NYC store later this summer, at which point it will have eight stores open in the U.S.
So, why enter the physical arena? Amazon dominates e-commerce, with recent reports revealing that it accounts for more than 40 percent of all online sales. For one, 90 percent of retail transactions take place offline, per eMarketer. Secondly, Amazon’s CFO hinted at a potential data angle during a recent investor call. He said that physical stores present “another way to reach the customer and test what resonates with them.”
Not your average bookstore
Here’s an odd fact: The books in Amazon’s physical stores do not display prices. Shoppers must scan the items to see the prices, which reflect various costs depending on if the shopper is a regular Amazon or a Prime member. Loyalty programs are a staple at traditional retailers, but rarely does one’s status result in a differentiated price structure. Walmart-owned Sam’s Club would be an exception here, as it requires a membership fee ($45) to shop there.
Not presenting pricing information also allows Amazon to capture data around a shopper’s intent to buy.
Within the physical stores, a significant space is devoted to showcasing Amazon’s Kindle e-readers, which are used to drive digital book sales. The stores also mark an experiment in AR: Amazon app members can use visual search technology to explore the store and capture additional information on price, reviews and shipping options.
Some experts suggest Amazon is using physical stores, like the one in Columbus Circle, to learn more about how to deliver a more robust omnichannel experience that blends the digital and physical worlds.
The trend from digital to physical
Amazon’s physical stores come during a time when digital-first properties and platforms are building out their businesses to include physical experiences in the real world. Online dating app Bumble just launched The Hive in New York, a brick-and-mortar hangout space for singles. Digital health insurance provider Oscar opened its first Oscar Center in early 2017, providing health and wellness services exclusively to members there. The online women’s lifestyle publication, Refinery29, periodically hosts 29Rooms pop-ups in cities across the U.S., bringing its readers closer to their brand (as well as the brands of their advertisers) via immersive, IRL experiences.
The ubiquity of technology has blurred the lines between digital and physical. The most obvious result of this shift has been the evolution of traditional companies and brands to adopt more digitally-centric offerings. But at the same time, digital-first players are seeking ways to capture attention in the world, beyond screens. In the case of Amazon, the ability to humanize its brand through in-person customer service and a unique store experience could bring in new customers and increase sales among existing members. Per Gartner analyst Robert Hetu, Amazon’s physical stores might even uncover data patterns offline that help the company create impulse buys online.
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