Amazon to open pickup shop in Manhattan

Discussion
Oct 10, 2014

Rumors about Amazon.com opening stores have been around for years. Now, according to The Wall Street Journal, the rumors will become reality when the e-commerce giant opens its first store (if you don’t count subsidiaries) on one of the busiest streets in the U.S. — 34th Street in New York City.

The store, which will be located across from the Empire State Building, will be used as a place for customers to pick up orders and to make returns or exchanges. It will also serve as distribution center for couriers making same-day deliveries in Manhattan. Many things are not known about the store, including how much if any inventory will be on display, the size of the space, the length of the store lease, etc.

As the Journal and others point out, Amazon opening stores provides both opportunity and risk for the company.

On the opportunity front, an Amazon store provides the opportunity to compete with brick and mortar retailers that are promoting click and pick services to capture sales.

"There’s a growing realization that you can’t force customers to shop in just one way," Chris Donnelly, global managing director of retail strategy at Accenture, told The New York Times. "We’re in a world where the retailer can no longer dictate the shopping experience."

On the downside, one of Amazon’s advantages versus physical store competitors has been its relative lack of overhead — operating stores costs money. If the company were to add stores and the staff needed to run them, costs could increase, putting increased pressure on profit margins and eroding the price advantage held over many competitors.

Amazon has not made any announcement on plans for a store.

What is your reaction to the report Amazon.com is looking to open its first physical store location? Do you see more opportunity or risk in Amazon operating walk-in locations for consumers?

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22 Comments on "Amazon to open pickup shop in Manhattan"

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Ken Lonyai
BrainTrust

As George points out, “one of Amazon’s advantages versus physical store competitors has been its relative lack of overhead … ” This location has serious overhead. So I’m taking the conservative position and am not convinced that this truly portends things to come. This store is likely a marketing/hype tool to showcase the brand, keep it front-of-mind in a major shopping area, cause some concern amongst competitors, and test the waters a bit. Long-term, I can see the company rolling out more flagship locations, but do not see them having a broad physical presence like Macy’s or Walmart.

Keith Anderson
BrainTrust

Amazon has experimented with customer-facing “stores” before. AmazonFresh piloted pick-up points in Seattle, and its BeautyBar subsidiary had a store outside of NYC (now closed).

There are several reasons this latest move could be wise:

  1. The Fire devices need to be seen and held to generate demand. As Amazon’s device investments grow, having a fully-owned physical selling environment could put Amazon on more even footing with other device makers. Amazon’s expected expansion into hardware and software oriented to small merchants (POS, bookkeeping, etc) could also dovetail with this move; perhaps it will run the store with its own technology.
  2. Relatedly, the deeper Amazon gets into services (both consumer and small business), the more it is likely to need human sales and support. Amazon is notoriously focused on automation and electronic communication, but it appears to be willing to experiment.
  3. Reverse-logistics are ripe for innovation. Amazon could use its new store to accept returns, as it has begun to do with its lockers.

As long as Amazon is targeted with the real estate it invests in and creates a compelling customer experience, I don’t see significant risk.

Paula Rosenblum
BrainTrust

Funny, one of Amazon’s advantages is its relative lack of overhead, yet the company doesn’t generate a profit.

I suspect shipping an infinite assortment adds a TON of overhead, and opening stores, particularly in pain-in-the-neck delivery places like NYC will actually result in a cost savings.

You know, in my fantasy, Amazon could buy the best of the real estate from the Sears and RadioShack carcasses and suddenly have a very interesting (and likely more profitable) business model.

In every single study we do—every single one—retailers cite their cross-channel shoppers as more profitable than single channel customers. Think about it.

I think it’s a way better idea than investing in drones, but that’s just me.

Marge Laney
BrainTrust
2 years 8 months ago

I read about this in another article where the author noted that Amazon had to do this because some people are still “touchy-feely” and need to actually interact with products before purchasing. It appears, however, more than just some people prefer to interact with products prior to purchase as over 90 percent of all retail purchases are made offline.

Amazon may be reporting the reason behind the store is ease of distribution and customer returns, but recent studies seem to point to consumer need to interact with some products before purchase and the amount of money they are willing to spend.

If Amazon is ever going to make a profit they are going to have to start charging more for some products. The only way that’s going to happen is to give customers the opportunity to interact with products which has been proven to be valuable to consumers. One study reported in the American Economic Review, found that customers will pay 50 percent more for products they can see and touch.

Brick-and-mortar is not dead, or even on life support. Amazon’s move demonstrates that while the internet is an important channel, it’s not the only channel.

Zel Bianco
BrainTrust
Amazon’s decision to open up a store in Manhattan will most likely provide a lot of opportunities for the e-commerce business. There is definitely the risk that Amazon will end up spending more money on creating and managing the store than it receives in store profits. It seems more than ever that customers prefer online shopping, particularly with the popular types of products that Amazon offers. It takes no more than five minutes to log onto Amazon, search for the product you need, and click to order. All a customer would have to do would be to wait for the delivery to their home or workplace. They do not need to spend more time on going to a physical store to find the products they want and check out in a line. Many of the products that are ordered on Amazon are also digital such as music, movies and e-books. There is no need to go to a store to buy such products. People seek to spend less time on shopping and are turning to technology to fulfill that purpose. However, many customers would prefer to pick up their products at a store if they would be able to receive… Read more »
James Tenser
BrainTrust

Wow, this 34th Street address was the former site of Fairchild Publications during my glory days there at Supermarket News and Brand Marketing. It was also previously the Manhattan flagship location of Orbach’s, a mid-priced department store that has since fallen into legend.

Besides its location a few steps from 5th Avenue, the building possesses several traits that make it especially suitable for Amazon’s purposes. As I recall the floors above street level have 20-foot ceilings that would accommodate warehouse racking. Even better, the building has a rear loading dock on 35th Street with covered access for trucks.

I doubt most retail observers are surprised to see Amazon take the brick-and-mortar plunge. It will be very interesting indeed to see how it handles this opportunity to create a high-profile showcase for its brand.

Gib Bassett
BrainTrust

I think it’s much more opportunity than risk. If nothing else, Amazon risks losing ground to traditional retailers as they start ramping up their own competitive capabilities. The best customer experience is one where the customer’s needs are met across a variety of channels so having some physical presence makes a ton of sense for Amazon. Regarding operating costs, you might expect Amazon to leverage its existing investments in distribution centers and people. This should be a wake-up call to brick-and-mortar retail to break free from legacy business models and silos.

Richard J. George, Ph.D.
BrainTrust

As I have stated in previous posts, if traditional retailers could force Amazon to operate stores, this makes Amazon compete in an environment that is the supposed sweet spot for brick-and-mortar retailers.

In the meantime this potential move by Amazon should provide the stimulus for lagging conventional retailers to offer click-and-collect options.

Bill Davis
Guest

Given the amount of experimentation Amazon does, we knew this was going to happen at some point. It will be interesting to see how it works over the holiday season and we’ll know soon enough if its just an experiement or an indicator of things to come.

Lee Kent
BrainTrust

This hardly sounds like much of a store to me, other than its location. A hefty price, I might add, for pick-ups and deliveries.

Amazon is a go-to site for shoppers who are looking for everything and anything under the sun. It is all about the endless aisle and its long tail, backed up by quality service and delivery. This is not a destination brand in my book.

So I guess the jury is out for me, and my two cents, until I see just how they plan to use this primo space in NYC!

Alan Lipson
Guest
Alan Lipson
2 years 8 months ago

As many others have stated, this is an opportunity for Amazon. As is mentioned in the article as well, this location is going to be used for multiple purposes, including that of a retail store.

I would suspect that with new competitors to the Amazon concept coming to the table (i.e., Alibaba), Amazon will need to differentiate themselves and this is a step in that direction.

Having been around a while I wonder if we are seeing a resurgence of the old catalog showroom idea. However in this case, the store locations would be like showrooms where the already existing distribution centers are located.

Is this an example of “build it and they will come?”

Gajendra Ratnavel
BrainTrust

This is a great idea. How many times did you have to go pickup from the depot because you were not home or schedule a delivery the next day, etc.

I also see this as a step closer in bridging the gap between in-store and online.

I am also guessing the customer will save money on delivery and possibly get it a day earlier.

George-Marie Glover
Guest
George-Marie Glover
2 years 8 months ago

I find it ironic that this news has come out at the same time that I heard a radio piece this morning on how customers can find many items at stores cheaper than they can order them at Amazon. Not only that, the piece pointed out that stores offer more options and price points because of house brands while Amazon only offers name brands. They even listed specific products and where you could find them at your local store for less than on Amazon.

Amazon may be like a child who has grown out of his clothes in a sudden growth spurt and needs a whole new wardrobe.

I’m not sure how one flagship store in New York will affect existing online shopping habits. I doubt, however, that a chain of Amazon stores would be ideally positioned to compete as successfully against other established brick-and-mortar stores that have also established multi-channel shopping experiences.

It appears that Amazon may have reached an awkward stage of development. It will be interesting to see how they continue to adapt and mature into a profitable entity.

Lee Peterson
BrainTrust

Keep in mind, this will be more of a fulfillment center than a traditional stock-on-the-shelves store. A little like a UPS store: Pick up, send out quick. There are still HUGE opportunities for brick-and-mortar retailers to improve the customer experience—starting with sales associates—and compete hardily with the non-profit monopoly of Amazon.

Carol Spieckerman
BrainTrust

Retail scale has been redefined—it is no longer achieved in a single channel. It’s no wonder digital-forward platforms have been slower to embrace this reality than brick-and-mortar based retailers though. Ongoing zero-sum predictions of digital’s domination went to pure-play platforms’ heads. Now, physical forays make too much sense for many including Microsoft, Google and Amazon, particularly as they double down on hardware/consumer products as a way of luring users into their content, product and solution ecosystems.

As pointed out in previous posts, there are plenty of retail dinosaur bones that would provide a great scaffold for these guys (RadioShack in particular). But, if Dollar General has its way with Family Dollar, a partnership with a digital powerhouse could help both entities play a long-overdue game of digital catch-up while giving the lucky platform a mega-footprint and gateway to new customers/users overnight. (If Dollar Tree wins the battle, Family Dollar will already have a digital leg up.)

Joel Rubinson
BrainTrust

I called it five years ago! (although I thought it would be in Times Square). I believe the signage impact will be enormous and it addresses two weaknesses of the online model: The need for immediate gratification, and the emotional aspect of touching something in the physical world. The trick will be to invent a retail experience that is uniquely Amazon. The sinkhole would be if they rediscover Consumer Distributing, where you had to wait for your product to show up on that horrible warehouse-y conveyor belt.

Ed Dennis
Guest
Ed Dennis
2 years 8 months ago

Doesn’t sound like a store to me, unless you are redefining “store”. Based upon what you are saying, this is a pick-up warehouse with return service. No one is advertising that this will be a “store”!

Given the location and the number of souls within a one mile radius, I would consider this a service enhancement. I don’t see any risk in trying to provide better service. I would love it if other retailers would put service kiosks about so I wouldn’t have to make 10 and 20 mile drives to return something. I would think that Amazon might look at doing this in any location with population densities approaching that of New York City. All in all, I think this is just overblown media coverage of a non event!

John Bajorek
Guest
John Bajorek
2 years 8 months ago

Amazon’s expanded fulfillment strategy with physical stores is an inevitable opportunity for retail to evolve. Retailers need to take a similarly aggressive approach to how they are fulfilling shoppers’ expectations. The burden of fulfillment has shifted from being defined by the retailer to today being defined by the preference of the shopper. The risk lies only in retailers that don’t evolve to meet or exceed the expectations of shoppers.

Ed Dunn
Guest
2 years 8 months ago

A few years ago, Groupon Asia established the pickup store model and launched a store in a high-rise business building across from “Times Square” in Hong Kong. The store was an instant success and the model is still thriving to this day with lines of people stopping by the Groupon store to pick up their Groupon items or certificates.

Amazon now appears to be establishing the same pickup concept here in the USA, interestingly in a commercial office space. If this is true, expect Chicago and other cities with heavy commutes to have downtown office spaces transformed into e-commerce pickup locations.

Tom Redd
Guest

This is Jeff doing some marketing and hoping to sell Kindles. He’s locating a distro center in a busy area where they need to ship goods.

Simple.

This is cutting into the thin margins Amazon has. I would guess that there will not be many of these sites opening — unless they are mainly distribution centers with pick-up desks and dusty Kindle demo areas. Think US Post office-look with a bit more flair.

Peter Charness
BrainTrust

Perhaps it could be called “the general store” — a place where the community gathers, has a coffee, maybe some crackers from the barrel, and comes to pick up the products that were special ordered for them. Either that or the roof will be the place to land the drones.

I think the RadioShack idea is the best. The assortment? An eclectic collection of all the products that are returned on sale for way less than the cost of the reverse logistics to send them “all the way back”. Kind of a treasure hunt of whatever someone else didn’t want to keep.

Ed Stevens
Guest
Ed Stevens
2 years 8 months ago

For more than a decade, Amazon had built a unique “premium” brand — huge selection and low prices surrounded by the world’s best online shopping experience.

The Kindle tablets and phones, following on the success of Kindle eReaders, were Amazon’s first real compromise on this brand promise. Kindle tablets and phones are low cost but do not deliver a premium experience.

A physical store in Manhattan will reduce the value of Amazon’s premium brand further. Sophisticated New Yorkers will not buy many Kindle tablets or phones even if they are on a gorgeous display. If they do bother going in the store, New Yorkers will not find a huge, Amazon.com-ish selection.

And the shopping experience will likely not be better than any other physical shopping experience. Faster checkout? Easier to pay? Don’t expect Amazon to improve upon physical shopping much.

After walking out of Amazon’s first physical store, customers will probably feel like it was worth the five minutes spent to check it out. Something to mention to Mom on a weekly roundup call. Then they will have that slightly empty feeling — the feeling we all have when we see a great brand going sideways.

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