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The report has not been confirmed by Amazon, which has told the media that it does not comment on rumours or speculation. However, recent years have seen the e-commerce pioneer steadily increase its investment in physical retail.
Since opening its first bricks-and-mortar store, a bookstore, in 2015, Amazon now runs more than 20 bookstores and more than two dozen 4-star stores in the US. The 4-star stores are typically around 4000 square feet, according to The Wall Street Journal, and stock a range of highly rated products.
More recently, the company’s offline efforts have been in the convenience space, with the launch of its cashierless Amazon Go stores, and grocery, following its acquisition of the upscale US grocery chain Whole Foods in 2017. In April, Amazon opened a hair salon in London.
Still, the reported move into department stores would represent the retailer’s biggest bet on bricks-and-mortar to date. And it would come at a time when some long-running department stores are closing up shop. So what could be driving the move? And what would a possible Amazon department store look like? We asked four retail experts to weigh in.
Why would Amazon open a department store?
According to GlobalData, US department stores have seen their overall share of retail slip from 14.5 per cent in 1985 to about 2.9 per cent today, primarily due to increased competition from online retailers, such as Amazon.
“The success of the department store was founded on the idea that everything you could ever need was gathered together under one roof, easy to find, and easy to purchase. An online marketplace such as Amazon fulfills this role remarkably efficiently, and arguably better,” former Myer CEO Richard Umbers told Inside Retail.
“Products are easy to find (the search box), easy to buy (the shopping cart), and the online marketplace is also catering for all customer groups at once – each customer being served a unique experience based on their preferences and past behaviour.”
So why would Amazon, which has led to and benefited from the decline of department stores, open its own? Craig Flanders, managing director of full-service creative agency Spinach, compared the move to search engine giant Google running TV ads.
“Any time you see an all-pervasive brand like Google putting a 30-second ad on your TV screen, you realise that everybody is trying very hard to find customers that they’re currently not finding,” he told Inside Retail.
For Amazon, the segment that it’s not currently reaching is customers who prefer to touch or try on products in real life before buying them.
“This could be a play by Amazon to engage those people,” Flanders said. “I would assume their objective will be to feed people back into their existing online machine over time.”
Another reason could be the opportunity to offer click-and-collect to online shoppers, a service that has become incredibly popular since the outbreak of Covid-19.
“Large department stores in the US and UK are continuing to compete online and are leveraging their stores to deliver consumer experiences that Amazon currently can’t deliver without a physical footprint,” Bradley Grinlinton, head of retail and consumer products at Publicis Sapient, told Inside Retail.
“With the pandemic-fuelled growth in BOPIS [buy online, pick-up in-store] as consumers’ preferred fulfilment method across the majority of their purchases, it’s not surprising that Amazon have chosen now to make their move into playing seriously in this space.”
Richard Facioni, founder and CEO of ACTA Capital, a private equity firm that focuses on the retail sector, agreed, saying it’s about allowing customers to shop when they want, where they want and how they want.
“Plus, you’ve had global consolidation in department stores with a number of closures, bankruptcies and department stores shrinking their footprints. So I’m not surprised by the move,” Facioni told Inside Retail.
What would an Amazon department store look like?
The Wall Street Journal offered few details about the look and feel of the stores Amazon is reportedly planning to open. However, experiential retail has been the dominant design trend in recent years, which could suggest a focus on unique experiences and immersive shopping environments.
“Real customer loyalty is tactile, a lived experience in-store, human to human, and when executed well, vastly more engaging than the transactional online process,” Umbers said.
“This is particularly the case in highly experiential sectors, such as luxury goods, fashion, and fresh food.”
On the other hand, Amazon has a track record of creating totally new store concepts, such as the innovative Amazon Go format without any checkouts, which could point to a more technology-driven department store model.
“I think Amazon will try to bring another level of technology to the retail space, whether that be self-checkouts or even no checkouts,” Flanders said.
“Whatever they do, they’ll try to make this play back to their strengths, which are in data and technology. I don’t think they’ll try to recreate a good-old-fashioned department store with a higher touch retail model.”
Either way, the move would reinforce the idea that an integrated offline-online approach to retail – omnichannel – is the path forward.
“A combined physical and digital omni-channel offer is mutually reinforcing – both channels benefit from an integrated but distinct offer,” Umbers said.
“The online shopper is lured to the superior engagement of the physical channel, and the bricks-and-mortar shopper to the endless aisle and convenience of the online marketplace. Amazon will surely stay predominantly digital, but the physical department store offers an additional cachet which can only enhance the brand.”
Can Amazon succeed where others have struggled?
General consensus is that Amazon has everything it needs to be successful in the department space.
“They have a strong brand to lure consumers in-store, but even more importantly the technology and data to execute on delivering engaging experiences and curated product ranges that will keep consumers coming back,” Grinlinton said.
“Their biggest advantage in the space will be their high levels of sophistication and automation in the supply chain that can ensure the traditional challenges around stock availability and fulfillment from stores typically experienced by department store retailers can be avoided.”
Facioni agreed: “Department stores have always been about range, convenience, service and experience. What Amazon has is incredibly rich data on its customers,” he said.
“This gives it a massive advantage in opening and operating those department stores, so I fully expect Amazon to succeed where others have failed in recent years.”