There is collective head-scratching across the InterWebs about a Wall Street Journal report that Amazon will open as many as 300, or even 400, stores selling books. The company's massive success selling ebooks and the cost and selection advantages of warehousing their physical counterparts make the concept seem nonsensical. I contend that it's brilliant.
Amazon is in process of expanding online services into the purview of local retail, which biggest competitive advantage is immediacy. In conjunction with the $99-per-year Prime program, the online retailer offers faster shipping; same day, and within hours, in some locales. The company increasingly contracts its own carriers, as well. Immediacy requires presence. What better location than a bookstore that also warehouses other goods and provides customer service operations? That's all without considering the branding opportunities, which, as Apple Store demonstrates, can be huge.
During fourth quarter 2015, Amazon generated modest $482 million net profit from $35.7 billion revenue. Cost of sales was $24.34 billion. Meaning: Like retail operations with physical stores, Amazon's margins are thin. Local shops have presence, which is great for their brand awareness, customer interaction, and cost of distribution. On the latter point, Amazon risks higher costs getting goods to customers as Prime membership rises (free shipping benefit), Prime Now shipping increases, amid customer sales priority makes immediacy as important as low cost.
By placing distribution centers closer to larger populations, like cities, Amazon can reduce some distribution overhead. Bookstores would be excellent storefront to a warehouse hub. The stores can:
- Extend brand awareness
- Build community around the brand
- Provide pleasant place for customers to hangout
- Be an Amazon Locker for picking up or returning purchases
- Build goodwill with locales by providing jobs and paying taxes
- Be a place where customers can get live, in-person assistance
Amazon needs to control distribution costs as it makes more products available faster. Bookstores fronting warehouse hubs is my recommendation, regardless of plans underway.
- Let customers see the brand
- Let them handle actual products for sale
- Let them gather to read books, drink coffee, and chat
- Let them experience Alexa and what she can do for families
Apple Store helped popularize the corporate brand, at a time when the fruit-logo company had little market share for any product. The retail shops created sense of belonging and good feelings about the brand. Apple promoted a digital lifestyle that customers could experience first-hand around its products and those from platform partners. Amazon could achieve similar results through a chain of bookstores.
With a difference: People already have memories of hanging out at bookstores, scouring the magazine rack, combing the aisles for sweet reads, and relaxing with a hot cup of brew. Amazon can tap into good feelings behind past experiences.
Whatever the cost to set up and operate the stores, the potential long-term benefits are greater.
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