The report by the Wall Street Journal that Amazon plans “several large physical retail locations in the US that will operate akin to department stores,”, didn’t do much to investors. Share prices saw a 0.4% drop at close compared to Wednesday, August 18. But it set off a lot of interest on the part of the real estate and retail industries.
“When Amazon says they’re going to do it, people take notice, Wall Street takes notice, other ecommerce brands take notice,” Beth Azor, owner of real estate advisory and investment firm Azor Advisory Services, tells GlobeSt.com. “For all of us that own shopping centers, it’s a good thing for us, it’s a good thing for the consumer, and it’s a good thing for [Amazon’s] brand. This is a great thing. They’ve planted the flag in the sand and said, ‘Bricks-and-mortar, this is serious.’”
Not that Amazon will openly talk about any plans. As a company spokesperson says to GlobeSt.com, “We don’t comment on rumors and speculation.”
But it’s not as though the company hasn’t shown significant interest in brick-and-mortar retail, with its own physical bookstores, 4-star stores, Amazon Hub pickup and return locker locations, and acquisition of Whole Foods four years ago.
But the new plans that the Journal noted were different, including spaces of about 30,000 square feet—about 30% of a traditional department store—that would first appear in Ohio and California with an array of name consumer brand products offered, and likely its own private label goods as well.
Experts see a few reasons why Amazon would go this route. One is to expand sales in certain product types.
“There’s some categories that are hard to shop online,” Douglas Bowman, professor of marketing at Emory University’s Goizueta Business School, tells GlobeSt.com. Apparel and shoes tend to have high return rates, cutting down margins. Such items as mattresses and large appliances are expensive to ship. Some people will be hesitant to purchase Amazon’s private label goods without the ability to see and touch them to verify perceived quality. Stores would increase the reach of sales in those areas.
The cost of doing business could also be a major factor. “It’s very expensive to be an operator online,” says Azor. With all the online noise, customer acquisition can become more expensive, while they are lower in physical locations.
“Historically, in a mall environment, the anchor store’s rent was [very] low,” John Talbott, director of the Center on Education and Research in Retailing at the Indiana University Kelley School of Business, tells GlobeSt.com. “They can use those as distribution centers.” That would add more last-mile locations.
Not that everything is less expensive. “Some of the challenges retailers have had is rising minimum wage, the difficulty in attracting high-quality employees,” says Christy Ashley, an associate professor of marketing at the University of Rhode Island.
But with Amazon’s starting salary of $15, the company might be able to siphon off better workers from competitors, especially with its balance sheet and available cash.
There’s also likely to be more benefits for the CRE industry. “It should only enhance Amazon’s and others continuing need for industrial space as they expand their market share in retail sales overall and look to improve their distribution networks,” Larry Botel, senior real estate advisor in the consumer retail group at PJ Solomon, tells GlobeSt.com.