Amazon looks set to open a fifth bricks-and-mortar bookstore, this time in Los Angeles. The online retail distribution giant’s move into physical outlets is raising a few eyebrows. However, we should know by now that Jeff Bezos does not take such decisions lightly.
Amazon is now appearing on all fronts. Hardly a day passes without some fresh news about the online retail giant. At the South by Southwest (SXSW) festival in Austin, Texas on 10-19 March, the Jeff Bezos juggernaut once again made a splash by showcasing its Prime Air delivery drones for the first time and letting the general public get fairly close to them. Amazon is counting on these unmanned aerial vehicles to expand its delivery service, either direct to people’s homes or to redistribution centres, getting as close as possible to its customers, including in urban or city-outskirts locations, once all the issues surrounding unmanned flight over cities and suburbs have been settled.
Amazon had already made a powerful impression a few weeks earlier at the Consumer Electronics Show (CES) in Las Vegas, without even having a stand. There the firm displayed the advances it has made with its Echo artificial intelligence (AI) system and its remote voice command system Alexa, which were embedded in almost all the major ‘connected’ inventions there, from self-driving cars to connected refrigerators. This AI-based tool has won over millions of Americans who use Alexa at home on a daily basis.
However, while Echo and Alexa have certainly caused a stir, these innovations were well within the bounds of standard Amazon territory – digital technology for retail purposes, e-commerce and remote control of objects and equipment. Amazon has now caught us on the hop with its plans to grow its business in bricks-and-mortar stores. Jeff Bezos’ firm, positioned at the cutting edge of smart city technologies, has surprised us by taking us back to the good old bookshop. And in the future perhaps to other types of store.
LA bookshop underlines new strategy?
According to the Los Angeles Times, Amazon is planning to open a bookstore in Los Angeles. This would be its fifth physical location in the United States – warehouses apart – the first four being San Diego, Seattle, Tigard in Oregon, and Dedham in Massachusetts. This would be the first time that Amazon had opened a physical bookshop in a major US metropolis and would appear to signal a definite strategy. So why would the company bet on bricks and mortar? It seems unlikely that this is simply a business decision designed to increase turnover. However big a bookstore is, it could never match the clout wielded by Amazon on the Internet, where the firm has become the biggest retailer in the world. Physical space in a store, whether on the shelves or in the stockroom, is strictly finite, while web capacity is virtually infinite. Sufficient storage is of course needed but it does not have to be in city centres, provided that the logistics work properly, and Amazon constantly refines its logistics chain. So even if the move into bricks-and-mortar enables Bezos to sell more goods, it is not likely to achieve significantly higher sales.
Strengthening brand affinity
So what about profitability? This is a relevant question because the Amazon approach, with its fine-tuned logistics chain, carries much higher costs than traditional bricks-and-mortar retailing. In fact, for quite a long time, Amazon made a significant annual loss. But those days are over. Amazon has now emerged from the red and has started to earn big bucks. So any additional profitability which a chain of physical stores might achieve would probably be negligible.
So if the purpose of the bricks-and-mortar approach is not to boost turnover or significantly increase profit, this move must be all about creating non-material value – brand value, brand reputation, affinity, ‘brand love’ among customers. If you want to forge strong ties with customers you have to go beyond mere usage value. The current situation is that when the goods you have ordered from Amazon arrive at your home, you generally grab the cardboard package from the deliverer’s hands and check that it actually contains what you ordered. The Amazon logo displayed on the packaging is the only contact you will have had with the brand since the moment you registered your order on the website. And in an instant, this sole brand connection is thrown into the waste paper bin without so much as a glance.
Attracting ‘super consumers’
It is almost certainly the risk of remaining a ‘cold’ brand, highly rated for its convenience but without much emotional value, that Amazon is now looking to counter. The outstanding model here must be Apple. As one of L’Atelier BNP Paribas strategic analysts Alessandro Promutico underlined in a recent article, what has made Apple a success is the unflagging support it receives from its ‘super consumers’, those brand addicts who serve as brand ambassadors worldwide and carry some of the general public along with them. A bricks-and-mortar store provides an opportunity for customers to come into physical contact with the brand, its salespeople and its products, if only for a few minutes. This moment of contact is far more meaningful than a mere click on a keyboard after a search lasting a few seconds.
This is no doubt what Jeff Bezos has in mind with the bricks-and-mortar strategy. In fact, Amazon seems to be returning to the idea of ‘clicks and mortar’, an expression first coined around twenty years ago when the Internet was just starting to catch on, opening up opportunities for e-commerce. At that time, we saw the appearance of online ‘pure players’, who had no physical outlets and sold their wares exclusively on the Internet, while most traditional traders refused to switch to digital, believing that e-tailing was just a flash in the pan that risked turning into a money pit. Between these two extremes there were nevertheless some who had the good sense to create a hybrid model – digital and physical, giving rise to the term ‘clicks and mortar’.
The true pleasures of consumption
It was not just the Web that decimated local commerce; the winnowing process had started much earlier, with the strategic offensive by mass retail and specialised store chains in town centres. However, lots of physical stores, both large and small, suffered badly from the battering they received from the digital players. Many small local bookshops simply disappeared, and Internet commerce also weakened large high street chains that failed to compete with the huge stocks held by the digital champions.
Nevertheless, there are limits to this process. Nowadays you can buy everything online but does the consumer necessarily want to shop that way? If that were really so, the stores would be empty. People do like to stroll through a shop, touch, feel, try this or that, and leave room for temptation. This is all part of the pleasure of consumption and this is what helps to foster a relationship between the consumer and the brands that s/he buys. This is probably the thinking behind Amazon’s move: that a retailer ought to have a physical presence on the street, close to people, even if at the end of the day the local presence looks insignificant in comparison with the digital power of the retail empire. A bricks-and-mortar presence will help to give Amazon a face and a soul – an essential asset for a brand, however powerful that brand happens to be.
War or Peace?
So, does Amazon intend to go further and start poaching on the lands held by retail giants such as US-based Wal-Mart, the world’s top firm by turnover with close to €500 billion in sales per year, and Carrefour here in Europe? Some people think so. Others take a different view: in order to avoid a war that would probably cost each side billions as Amazon looks to open stores worldwide and the large incumbent retailers search for the kind of digital and logistics solutions that Amazon has already successfully set up, would it not be in their interests to work together and share the profits? The answer to this burning question will determine how this amazing company headed by the brilliant Jeff Bezos goes forward.