Amazon's Next Big Move:Taking Over the Mall

What if Amazon's move into a chain of bookstores, convenience stores for groceries and kiosks for electronic devices are all evidence of the company's growing realization that pure ecommerce is not economically sustainable?

Which may mean only a convergence strategy based on a mix of digital and physical will work. JL

Nicholas Carr reports in MIT Technology Review:

Bezos underestimated the allure of bricks and paper. After 20 years of growth, ecommerce still accounts for less than 10 percent of total retail sales. He seems to be admitting that if Amazon is to expand, it will need to invest in bricks as well as bits. Amazon is planning to open convenience stores, along with drive-in depots to pick up merchandise ordered online(and is) rolling out “pop-up” stores to hawk its electronic devices. “Pure-play Web retailing is not sustainable.”
As I pull my phone from my pocket and start snapping pictures, I feel like a private eye, or even a secret agent. I’ve just walked into Amazon Books, the Web giant’s flagship bookstore in Seattle, but my intentions have little to do with shopping. I’m on a reconnaissance mission.
Like many authors, I have a love-hate relationship with Amazon. The love is transactional. Amazon sells about a third of all printed books purchased in the country, and some two-thirds of all e-books. The hate is a form of mistrust. The company’s size gives it immense power, and it has at times acted like a predator, trying to dictate the terms of bookselling while showing contempt for the traditions of publishing. I’m not entirely sure whether Amazon wants to be my benefactor or my undertaker.
So here I am, behind frenemy lines, taking photographs of shelving.

Bezos may love books, but what he loves even more is the idea of total victory, with no survivors among the vanquished.

After a half-dozen shots, I stow the phone and approach one of the four clerks in the store, a solicitous young man with a slightly antsy demeanor. He smiles when I ask why the leviathan of virtual retailing would bother opening a store in the real world. “We’ve accumulated 20 years of data on bookselling,” he replies, then adds, “And Jeff Bezos really, really loves books.” I sense he’s said these things before. I inquire about the store’s design, and he explains that it was modeled on the Amazon site. All the books are displayed with their covers facing outward, a visual echo of the thumbnail images that crowd the Web store. Beneath each volume is a small placard that displays the book’s Amazon star rating—only books that have earned at least four stars from Web buyers are stocked—and that also includes a brief excerpt from a customer review. One of the store’s displays offers “If you like this, you’ll love this” suggestions, a play on Amazon’s recommendation engine, while another promotes new books that racked up a lot of pre-orders online.

I wander to the center of the store, between the fiction and the nonfiction sections, and find a series of low tables displaying, in Apple Store fashion, samples of various gadgets that Amazon sells under its own brand. There’s the Kindle Paperwhite e-reader, the Fire HD tablet, and the Echo voice-activated virtual assistant, along with a selection of headphones, wireless speakers, and other accessories. At the head of the hardware aisle, facing the shop’s entrance, is a big television running Fire TV, Amazon’s set-top streaming box. A little boy is sitting on a bench in front of the screen, engrossed in the video game Crossy Road.
What’s Amazon doing with Amazon Books? That question has hung in the air ever since the Seattle store opened in November 2015. Speculation about the company’s motives intensified during 2016 when it opened two more bookstores, in San Diego and Portland, Oregon, and divulged plans for more in Chicago and suburban Boston. Since Amazon has said little about its strategy (it ignored my requests for comment), Wall Street analysts and tech writers have filled the void with conjecture. The stores are all about selling gadgets, goes one popular idea, with the books there just to lure customers. The stores are data-gathering machines, goes another, enabling Amazon to extend its tracking of customers into the physical world. Or maybe the company’s secret plan is to use the stores to promote its cloud computing operation, Amazon Web Services, to other retailers.
The theories are intriguing, and they may contain bits of truth. But the real impetus behind the stores is probably much simpler: Amazon wants to sell more books.
Not long ago, the common wisdom held that Amazon would remake the book business in its own image. Its Web store would kill off bookstores, and its Kindle would render physical books obsolete. In an interview in 2009, 18 months after the Kindle’s launch, Jeff Bezos suggested that the “great 500-year run” of the printed book was coming to an end. “It’s time to change,” he declared. Readers had a different idea. After an initial boom, sales of digital books went flat and then started to fall—in the mainstream trade-book market, e-book revenues dropped 11 percent in 2015 alone, according to the Association of American Publishers—while sales of printed books, far from collapsing, held steady. Bookstores, too, have been making a comeback, led by small, independent shops. According to the U.S. Census Bureau, sales in bookstores grew 2.5 percent in 2015, the first uptick since 2007, and the growth rate strengthened to 6.1 percent during the first half of 2016. The number of newly opened bookshops has also been on the rise.

“Pure-play Web retailing is not sustainable.”

Bezos underestimated the allure of bricks and paper. With his bookstore chain, he now seems to be admitting that if Amazon is to expand its share of the book market, it will need to invest in bricks as well as bits. Beyond the business rationale, it’s hard not to see a certain vindictiveness to Amazon’s move. Having come up short in its plan to supplant books and bookstores with digital alternatives, the company is taking its revenge by attacking traditional bookshops on their own turf. Unlike the mom-and-pop independents, or even the struggling Barnes & Noble chain, Amazon has the scale and the cash required to wage a war of attrition. It can sustain losses on its stores for a long time. Bezos may love books, but what he loves even more is the idea of total victory, with no survivors among the vanquished.
The limits of online retail
Amazon Books may be just the vanguard of a much broader push into brick-and-mortar retailing by the company. In October, the Wall Street Journal revealed that Amazon is planning to open a chain of convenience stores, mainly for groceries, along with drive-in depots where consumers will be able to pick up merchandise ordered online. It has also begun rolling out small “pop-up” stores to hawk its electronic devices. It already has more than two dozen such kiosks in malls around the country, and dozens more are said to be in the works.
Even after 20 years of rapid growth, e-commerce still accounts for less than 10 percent of total retail sales. And now the rise of mobile computing places new constraints on Web stores. They can’t display or promote as many products as they could when their wares were spread across desktop or laptop monitors. That limits the stores’ cross-selling and upselling opportunities and blunts other merchandising tactics.

At the same time, the smartphone, with its apps, its messaging platforms, and its constant connectivity, gives retailers more ways to communicate with and influence customers, even when they’re shopping in stores. This is why the big trend in retailing today is toward “omnichannel” strategies, which blend physical stores, Web stores, and mobile apps in a way that makes the most of the convenience of smartphones and overcomes their limitations. Some omnichannel pioneers, like Sephora and Nordstrom, come from the brick-and-mortar world. But others, like Warby Parker and Bonobos, come from the Web world. Now, with its physical stores, Amazon is following in their tracks. “Pure-play Web retailing is not sustainable,” New York University marketing professor Scott Galloway told me. He points out that the deep discounting and high delivery costs that characterize Web sales have made it hard for Amazon to turn a profit. If Amazon were to remain an online-only merchant, he says, its future success would be in jeopardy. He believes the company will end up opening “hundreds and then thousands of stores.”
Beyond its expertise in Web sales, Amazon brings distinctive strengths to an omnichannel operation. Its vast, efficient network of warehouses and distribution centers can supply outlets and process returns. It has, thanks to the largesse and patience of its investors, a reservoir of cheap capital that it can draw on to fund a building spree. And it has a much-admired brand. What Amazon lacks is experience in the touchy-feely world of traditional retailing. The company’s proficiency in software and data crunching is unquestioned. Its people skills are another matter.
Variable prices
The Seattle store sits between a Tommy Bahama and a tanning salon at the southwest corner of the upscale, open-air University Village mall. The exterior is clad in brick, with black-metal moldings around the windows. The floor is hardwood—handsome, tea-colored planks. The shelves and tables are built of thick, grainy boards. Even the big TV monitor up front is encased in a wooden frame. The lighting is bright, the signage crisp. Neither cozy nor trendy, neither retro nor modern, the space is pleasant without being distinctive. It suits the mall setting.
As I walk around, I overhear another clerk tell a customer that Amazon Books is “all about browsing.” But that’s not the way it feels to me. The narrow aisles and the head-high shelves, with all those outward-facing covers, produce a mild claustrophobia that discourages leisurely shopping. And the relatively small selection of high-ranking books, all arrayed in uniform rows, sends a message of fungibility. Every choice seems equally safe, a data-sanctioned “good read.” (The four-star cutoff tends to filter out the controversial and the experimental.) Despite a few armchairs and a long bench along one wall, the shop has a grab-and-go vibe, not much different from that of an airport bookstore.
The most distinctive feature of Amazon Books lies not in its design or its merchandising or even its technology—the tech seems about on par with what you’d find at a Starbucks—but in its approach to pricing. There are no price tags on the books, and what customers pay depends on whether or not they’re enrolled in the Amazon Prime loyalty program. Those without a Prime membership pay the list price. Those with Prime pay Amazon’s discounted online price. To find out what that price is at the moment, you have to carry a book to one of several bar-code-scanning stations set up around the store. Scan the code on the back cover, and the price is revealed on a screen. (As an alternative, you can scan a code on the book’s shelf placard with an Amazon app on your phone; that brings up the book’s page, with its current price, on the Amazon site.) The process is cumbersome, but it hints at what is probably another of the store’s goals: to promote the Prime program, which is central to Amazon’s strategy of locking in customers.
Having spent nearly an hour in amateur black-ops mode, taking photos and scribbling notes, I sense that the clerks are eyeing me with suspicion. Not wanting to blow my cover, I decide I should buy something and leave. I grab a copy of Joan Didion’s Slouching Towards Bethlehem (4.3 stars) and take it to a small checkout area tucked away near the cookbook section. A sign in front of the registers informs me that I have the option of paying with my phone, but that would require launching an app, scanning yet another code, and then handing the phone to the checkout clerk. It seems simpler to swipe a credit card. Not being a Prime member, I pay full retail: 15 bucks, plus tax.
Outside, it has started to rain. I summon an Uber and sit in the back as the driver follows the route on his smartphone over the Montlake Bridge and through the city to the Courtyard by Marriott where I’m staying. Going up to my room holds little appeal, so I head into the lounge, order a vodka, and flip through my e-mails. Over the bar are three TVs, each tuned to a different ball game. I feel let down. I had convinced myself that I was going to witness something fresh and unexpected at Amazon Books. What I found was an annex to a website—a store that, despite the bricks and paper, retains the coldness of the virtual.