These stores would also give Amazon central locations where customers would be able to return products they purchase off its website and serve as de-facto warehouses to ship goods to shoppers’ homes faster. Opening stores would make sense from a real estate perspective, according to analysts, because vacant storefronts are spattered across cities and inside malls, and Amazon can move in for cheap prices.
But there are risks. Amazon doesn’t have any experience running department stores, and it’s record with physical stores is spotty.
‘Touch and feel’
Department store sales shrunk from $184 billion in sales in 2010 to $135 billion in 2019, according to Census Bureau data. In 2020, they plunged to $114 billion, according to the Census Bureau.
The void in the market opened up by the collapse of many traditional department stores is one reason that may factor into Amazon’s calculations to open such stores.
“They have long been planning to explore that opportunity, created by the vacuum of a lot of department stores closing,” said Venkatesh Shankar, professor at Texas A&M University’s Center for Retailing Studies. “They’re getting in at a good prices and lease rates.”
“Online is a convenient, efficient channel for repeat purchases, reordering bath tissues, diapers, batteries,” said Shankar. “If you really want to build brands, the brick-and-mortar presence is critical.”
Analysts say physical department stores may be a vehicle for Amazon to gain a greater share of customers who prefer to shop in stores, don’t have credit cards to shop online, or live in areas Amazon doesn’t service.
“I believe that Amazon, in their endless intent to continue to grow, intends upon expanding their market share through customers who can’t or don’t want to shop via e-commerce,” said Mark Cohen, director of retail studies at Columbia Business School and the former chief executive of Sears Canada.
In categories like clothing and home decor, Cohen said, a physical presence appeals to customers “who do want to touch and feel products rather than buy them blindly.” Physical stores also better help drive impulse and unexpected purchases than online shopping, he said.
Amazon is trying to build out its private label brands such as Amazon Essentials, Goodthreads, and Core 10 clothing and Rivet and Stone & Beam furniture. These department stores would give Amazon a platform to introduce customers these less-familiar brands.
“These locations will function as last mile distribution hubs in highly populated urban areas, where distribution centers are not located,” said Matthew Katz, managing partner at SSA & Co., an advisory firm, in an email. This is an “advantage for same day, even same-hour delivery.”
‘Terrible track record’
There is no guarantee Amazon can create a vibrant department store, though. Its recent forays into physical stores have been mixed.
Amazon has not seen the same level of success with physical stores as it has online. Sales at Amazon’s physical stores dropped 0.18% in 2019 from the year prior to $17.2 billion and 5.6% in 2020 as more shoppers ordered online in the pandemic.
“Amazon has a terrible track record in physical retail,” said Sucharita Kodali, a retail analyst at Forrester.
Kodali said “department stores are a dying format” and it would be a mistake for Amazon to open a similar concept. The previous stores Amazon has opened have been “entirely unremarkable. It doesn’t lend any confidence in a thesis that Amazon’s next store is going to be a game changer.”