February 6, 2012

Rumor: Amazon to open stores

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Speculation is high that Amazon has had a revolutionary idea about how to better sell books: the rumor is they’re going to open stores.

In an early report on the rumors, Jason Calacanis at Launch noted that Jeff Bezos ”Bezos gets off on destroying channels” and on imitating Steve Jobs. Calacanis imagines the stores would be huge — Wal-Mart-sized — and feature lots more than books:

… the store could just be a showroom with display units of appliances and “geniuses” running around showing you the top 25 vacuums in action. Or the top 10 juicers actually making juice.

It could be Consumer Reports meets the Apple Store on crack!

There wouldn’t have to be any inventory, you would simply play with the stuff, talk to a professional and swipe your Amazon Prime credit card (or Amazon phone) and have it at your house in the next 24 to 48 hours.

As David Streitfeld notes in a New York Times report, giving credence to the rumors has been the fact that lately, Amazon has been ”relentlessly expanding into the physical,” announcing several new, 1 million-plus square foot warehouses around the country, “delivery lockers in New York and Seattle for those who cannot receive their goods at home,” and has even “been experimenting with a grocery delivery service in Seattle for several years.”

And, Streitfeld adds, while the idea may seem “farfetched, but before 2001 so was the idea of Apple operating its own stores.  ’I give them two years before they’re turning out the lights on a very painful and expensive mistake,’  a consultant told BusinessWeek about Apple’s plans in what has become one of the most celebrated bad guesses of the era.”

On the other hand, he notes …

Amazon does not comment on rumors (or on much of anything, really.) But analysts do not think highly of the notion. The company wants to get closer to its customers to bridge the last mile of distribution, but not that close.  “I don’t think the idea of Amazon getting more physical and adding more bricks would improve their return on invested capital,” said Brian Nowak of Nomura Securities.

Another problem: Apple, he noted, was focused on one category. Amazon ranges all over the map. Its stores might be pretty big.

But a MediaBistro report by Dianna Dilworth, meanwhile, gives one more reason why this might look good to Amazon: “Why would it make sense to open a physical store to sell digital items? Perhaps to compete with Barnes & Noble’s Nook business, which is known to have better customer service than Amazon because of in-store offerings.”

Given some of the grief brought upon Amazon lately by B&N (here, for example), and knowing how retaliatory Amazon can be (too many examples! okay this one), it’s not hard to think it might be as simple as that.

 

Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.

  • http://www.ianmacallen.com Ian MacAllen

    Amazon has one big reason to stay out of the brick and mortar game: sales tax. One strategy the company has long employed in order to avoid collecting sales tax — and maintaining discounted list prices — has been to avoid physically existing in states that want to collect taxes. 

    Amazon warehouses are incorporated separately in legal arrangements ensuring the companies cannot be confused. Their delivery lockers are all part of other companies’ stores. But constructing tangible Amazon storefronts probably makes it far too easy for state tax agents to insist on collecting sales tax from the company, even on items sold over the internet. 

    The right to evade taxes has proven far to valuable to Amazon with the company going as far as relocating warehouses whenever it seemed they might lose tax loopholes or legislative arrangements. I doubt they’d risk it for customer service that could be provided by retail partners. 

    • http://mhpbooks.com Melville House Publishing

      All true, although it’s also true that the company has been losing the battle against collecting taxes in more and more states — most recently, cutting deals in California and Indiana and Pennsylvania, for example, that have them agreeing to collect sales taxes after a brief delay. The Streitfeld article I cite above speculates that perhaps Amazon feels it’s a losing battle, and a storefront initiative would make so much more money that it’s worth it. — Dennis Johnson

      • http://www.ianmacallen.com Ian MacAllen

        Given though how ardently Amazon has pursued a tax evasive strategy, I suspect they’d fight until the last state in the union forced them to concede. Perhaps they’ll look to states where they already collect sales tax to launch new stores. Still, I would think pushing store within a store strategies like Apple has done with Best Buy might prove more successful in the short. 

        On the other hand, if they can use their technology and warehouses to have a just in time inventory management system there could be advantages like same day delivery for online orders.  

        Personally I tend to prefer Amazon for many products because it means not dealing with pushy sales people, not waiting in line and having a selection of product models that is unsurpassed. 

  • Peter Turner

    Oddly, while I find the notion of Amazon opening stores horrifying to the extreme, it would make strategic sense given the challenge of discoverability without physical bookstores and retailers in general. Ironically, as more sales go online, online retailers need brinks-and-mortar retailers to create awareness of products. Ian MacAllen’s comment below regarding the sales tax implications for Amazon is a good counter argument but it’s been looking recently that Amazon may lose that battle. On balance, though, I don’t think Amazon will go into b&m retailing for one very good reason. It’s not in their DNA as a company.

    • http://mhpbooks.com Melville House Publishing

      That’s a smart observation — what do they do with that cocky disdain for brick-and-mortar retail if they goo into it themselves? Although, they seem to have swallowed their disdain for publishers enough to start a publishing company … maybe their disdain for others is just classic envy? — Dennis Johnson

  • Justin Bryant

    Some interesting points in both the article and comments, but I just have to commend the quality of that Photoshopping. You seem to have invented new spatial dimensions. ;)

  • http://vaguelypiratical.com/ Will

    Amazon passed the point a while back where an anti-trust investigation should have started.  I can’t imagine putting in big visible reminders of their market dominance is the best move if they want to avoid that.

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