Amazon’s Non-Department Store Launch

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Is this Amazon’s breakout retail moment?  After testing various retail formats, with some “keepers,” they plan to launch what “is akin” to department stores, according to a Wall Street Journal article. So, I have to ask, is this just another experiment? Or are they going all in, having learned enough about retailing from their test models to plow right into the sector that has been under siege for decades, steadily losing share of market to the luxury space, off-pricers, outlet stores, specialists, including fast fashion, and most recently to ecommerce competitors (ironically Amazon itself). According to Customer Growth Partners, department stores had a 10 percent share of market a generation ago, and last year, it was under one percent. Indeed, there used to be a high end, low end and a middle (which like the income gap, seems to be hollowing out). Those stores that survive this decade will have been transformed to a model that will look nothing like last century’s department stores.

Amazon’s Foray into Physical Retail

So, I DO NOT believe Amazon’s concept will even resemble a department store as it was defined in the past (Macy’s for example, who, by the way, is transforming itself in so many ways). Amazon apparently wasn’t ready to become a department store in 2017 when they placed Amazon shops within Kohl’s stores. At the time, I suggested they may have had an unspoken strategy to eventually acquire Kohl’s. In fact, I said it would have been a brilliant strategy. Had they done so, they would have had some 1155 off-mall shopping and distribution centers overnight, as opposed to spending years and billions of dollars rolling out their own stores.

[callout]Is Amazon going to plow right into the retail sector that has been under siege for decades, steadily losing share of market to the luxury space, off-pricers, outlet stores, specialists, including fast fashion, and most recently to ecommerce competitors (ironically Amazon itself).[/callout]

It is puzzling to me that Amazon has chosen to launch one retail concept after another as experiments. Some seem to be sticking, however, none of them appear to be scaling at a rapid pace. The Whole Foods acquisition of about 500 stores sparked my idea about a Kohl’s acquisition, even though I was also puzzled by the fact that if they wanted to buy scale overnight in the grocery business, why wouldn’t they have just acquired Kroger?

Because they have not made any huge acquisitions in the brick-and-mortar world, Amazon must believe they are superior in innovating new paths for consumer engagement in the 21st century.  And the skeptic that I have been about Amazon, often taking shots at them pointing to every strategic move Walmart has made bringing them one step closer to becoming Amazon’s biggest headache, I’m now beginning to believe that Amazon may indeed be the most innovative machine in retail’s glorious history.

Two Superior Competitive Advantages

In my opinion, there are two things that give Amazon a superior lead over everybody else:

  1. At their cultural core, envisioned by Bezos, is Amazon’s intense, obsessive and continuous goal of exceeding consumer’s expectations. Everything starts with the consumer and then they work back to the solution.
  2. Their use of technology, data analytics and constant innovation in both, is unparalleled.

So, it appears that they are going for a build vs. buy strategy with the confidence they will eventually innovate unique models of engagement with consumers and deliver above expectations in ways that could only be achieved with these two enormous competitive advantages.

A Test Here and a Test There, Data Everywhere

Amazon’s whole bunch of experiments have at the very least given them tons of local consumer preference data as well as local consumer demographic and shopping behavior data in various urban and suburban markets.  There are 11 Amazon 4-Star general merchandise stores, (mostly gadgets and kitchen products) and 10 more in the queue; 25 Amazon Go cashier-less convenience stores and one more in the near future; one Amazon Go Grocery store; five Amazon Pop Up themed kiosks and another coming soon; 21 Amazon Books stores and two to follow; and 500 Whole Foods stores. They are also opening an Amazon-branded grocery store in Los Angeles.

It is likely that Amazon picked the locations for these stores based on the huge volume of data they have accumulated over more than two decades. I have written that Amazon knows what the working mom with two kids and a golden retriever, living in the northeast corner of Peoria, Illinois, eats for breakfast and the brand of jeans she wears, and on and on. So, they can pinpoint precisely where to place these test stores, and what to put in them.

Just Don’t Call It a Department Store

Through superior data analytics down to specific consumer product preferences in various categories and markets, demographic profiles, spending habits, frequency of purchase, and precisely where they live, Amazon has an enormous competitive advantage for opening roughly 30,000 square-feet stores, some of the first to be in Ohio and California, according to the WSJ article.

This is about the size of a Kohl’s or T.J. Maxx, but only about a third of the size of a traditional department store. It is also expected that the Amazon stores will be located off-mall, and more locally accessible.

Furthermore, the smaller footprint will likely be hugely more productive than the retail competitors they will place themselves next to.  So, fire alarms for the department stores that have already lost a major share of market to Amazon’s ecommerce business. As they say, “You ain’t seen nothing yet.”

Amazon’s higher productivity and operating efficiencies (due to their laser-like precision capability to place the precise product in front of the precise consumer, in their neighborhood, when they want it) once they gain scale, will steal an even greater share of market. This will hit hard in merchandise categories Amazon is reportedly to offer apparel, electronics, household items and some of their own private label products.

Finally, we can expect this unique model, however they define it, will have highly innovative embedded technologies to enhance the shopper experience. Many of their smaller test stores have been pioneering technology from the get-go.

I repeat, Amazon’s two enormous competitive advantages are why I believe this will not just be another experiment, but an all-in determined strategy. They will aggressively roll out stores and there will be no looking back. In true Amazon form, they won’t be called department stores. Because they won’t be.



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