Amazon takes on retail with new brick and mortar location
Amazon is set to open its Amazon 4-star store in a new location within Manhattan, where it will sell various highly rated products, which can also be found on its famous e-commerce website.
This is not the first venture into brick-and-mortar retail that Amazon has made, as its acquisition of Whole Foods and opening of various book stores has shown a product focus back onto physical shelves.
But why is Amazon investing in a sector that many would consider destroyed? While being responsible for 43 percent of all online sales, Amazon’s investment within physical stores seems unnecessary, and almost counterintuitive to the e-commerce trends of our modern economy.
However, Amazon did not reach its trillion-dollar valuation by staying within one sector of the economy or by following mainstream trends or ideals on its business plan.
Amazon discovered a lack of large-scale investment within commercial real estate within New York City and plans to take advantage. By putting its brand items within physical shelves, it is not only serving as a basis to increase its total consumer base beyond the online shopper, but also to circumvent the needs of fast delivery of their various goods with a physical store.
This strategy also puts Amazon’s brand within vision of its main target market — higher income urban residents who will further associate the brand and Amazon’s products — turning window shopping into a potential online sale when they get home from their commute.
This trend of reinvestment after a downward trend is vital in not only stock option trading, but in Amazon’s business acquisitions as well.
After a large stagnation in grocery consumer technology, a lack of a main conglomerate dominating the market and stagnation in its profit models, Amazon decided to enter the grocery market.
While maintaining the real estate, employment and utility cost within New York will be high, Amazon will not hesitate to re-enter the sector in order for its long-term vision of growth.
Furthermore, Amazon realizes that to truly continue its tremendous growth, it must expand into new markets.
Following the eastern market trend of its international competitors Alibaba Group Holding Ltd., WeChat and Tencent, Amazon hopes to connect the physical shopping experience with its e-commerce business.
This provides customers with not only the ability to look at the physical quality of Amazon’s top selling items, but also provides valuable market data that may not be accessible through pure online sales. Such market data includes the daily amount of foot traffic, items that are being viewed the most, average expenditure per buyer and if consumers are coming as individuals or as families. While a large amount of this data may be perceived through online shopping, it might be harder to infer or directly correlate.
The pricing of the items will be based on its digital sales; this fosters fluctuating prices. Those with Amazon Prime will be charged this online price, while those without Prime will be charged its higher average list price.
Amazon hopes this will lead to higher on-the-spot Prime membership deals, further incentivizing consumers to subscribe. Once again, the trend of market control and not profitability is seen within Amazon’s business strategy.
While many of their Prime members will shop online for convenience and also to save money, Amazon hopes these physical stores will supplement the heavy usage of its fast-delivery system, now giving consumers the option to buy it directly if needed rather than waiting the already quick one- to two-day delivery guaranteed with Prime.
This strategy, coupled with its partnership with the United States Postal Service, Amazon Locker, is allowing the utility of Amazon to truly be seen in various functionalities.
The cost of maintaining real estate within New York City is nothing to scoff at, as large brands such as Toys R Us and Cadillac sell their holdings in order to decrease cost.
Furthermore, it seems counterintuitive to open physical stores when the majority demographic are online shoppers. A risk indeed, but this will not be the first time Jeff Bezos ventures into untested waters for the hopes of profits.
With large scale failures such as the Amazon Fire phone, one cannot expect complete perfection from all of Amazon’s decisions. Bezos said in a statement: “The size of your mistakes needs to grow along with [the company].” If it doesn’t, you’re not going to be inventing at scale that can actually move the needle.”
With a company that has succeeded as much as Amazon and holds such a large market share of profitable sectors such as e-commerce and cloud computing, Bezos is willing to use this large control of the market to make some mistakes for the eventual control Amazon has always achieved.