BrainTrust Query: Will Amazon’s Showroom Become Amazon Showrooms?

Discussion
Aug 03, 2012

For some time, there’s been speculation on whether Amazon will open its own stores. And, as the logic goes, in order to avoid all the physical store overhead — and to take full advantage of its distribution engine — opening showroom-only locations would be most likely. I thought it would be a good exercise to examine if this makes sense.

It’s hard to define Amazon. Are they a retailer, a shopping focused social network, a fulfillment company, a technical services company? To make them the power that they are, it’s apparently all four. Retailers can use the Amazon network to promote their own offerings, consumers can read and post product experiences, manufacturers can direct ship their products from fulfillment centers, and IT software companies can build their solutions on the Amazon services network. Everyone is happy. Well, except for brick and mortar retailers, of course.

For years, brick and mortar retailers have complained about online retailers not being required to collect sales taxes, and most of the ire has been directed Amazon’s way. Now it looks like that advantage will finally be lost. It also means Amazon will no longer be required to avoid creating a "nexus" (physical presence) in each state. More recently, the complaint has been that brick and mortar stores are becoming showrooms for the online retailers. With a (still speculative) same-day delivery service, Amazon would hope to satisfy the impatient consumer with near immediate gratification. This would only exacerbate the showrooming issue.

But if Amazon is truly able to create a better online shopping and fulfillment experience that drives the brick and mortar stores out of business, where would consumers go to see merchandise before they order it? Will Amazon eventually need to open its own showrooms? Is there a new retail business model evolving that consists of a super-fast fulfillment capability supported by consumer-facing showrooms?

I can see Amazon creating a local presence whose emphasis would be customer service and implementation. Consumers would shop for their new stove at the local showroom, but the delivery and installation would be coordinated from the fulfillment center. The local showroom would demonstrate a new entertainment center, but the installation would originate from the fulfillment center. Maybe Amazon would offer training and certification of local "Amazon Approved" contractors.

Discussion Questions: Do you think Amazon should begin now to establish its own showrooms? Do you see this as a unique retail business model and, if so, how do you see it spinning out?

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23 Comments on "BrainTrust Query: Will Amazon’s Showroom Become Amazon Showrooms?"

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Jason Goldberg
BrainTrust

There is so much to be learned by watching shoppers interact with products in a physical store while they are making their purchase decisions. Even if Amazon has no interest in ever monetizing a retail strategy, it makes perfect sense for them to open some stores.

Amazon has always been a first mover in shopper analytics, and (once they don’t have to worry about tax nexus) I’d be surprised if they don’t open some stores if only to enhance their shopper insights.

Richard J. George, Ph.D.
BrainTrust

I disagree. The Amazon model has been built on easy access to products and extreme customization for each customer. Amazon knows its customers better than any other retailer, bricks and mortar or virtual. Offerings like Amazon Prime, Subscribe and Save, and other customer-focused programs dignify the customer and make their shopping lives easier.

No doubt the implications of collecting sales tax will create some new challenges and even opportunities for Amazon. Developing distribution centers within states creates new costs. However, these costs may be offset by quicker delivery options, e.g., same day or next day by 10 AM, thus obviating the immediate gratification option provided by bricks and mortar retailers.

I am not a fan of if it is not broke, don’t fix it. However, I do believe Amazon has developed a niche that customers love and support and question the value of trying to act like a bricks and mortar retailer by opening showrooms.

Liz Crawford
BrainTrust

Amazon’s core competencies are digital communications and fulfillment, not bricks-and-mortar retail. And certainly not in-person service. Even if they decide to venture into this territory, there is a big learning curve and plenty of competition ready to pounce. At most, I could see a scenario where Amazon had “favored” vendors who showroom the merchandise and share in the profits. I don’t think it makes sense for them to re-invent the wheel on that.

Ken Lonyai
BrainTrust

Showrooms are not a good idea for Big A. First, they are a web only brand — showrooms would be perceived as stores and then what would make them that different than Macy’s or Best Buy in the eyes of consumers. It would then all come down to price and fulfillment.

Long term, operating staffed b&m locations would make it difficult to maintain price advantages. Despite popular folklore, Amazon does not have distribution/fulfillment locked up. Any company with the commitment and finances can also build a supply chain that’s effective and customer focused if they see the long-term pay-off. Amazon showrooms just might be the incentive that they would need to give it a go.

Nikki Baird
BrainTrust

If nothing else, Amazon has proven that consumers are more than happy to buy just about anything online, with only an image, product description, and reviews to inform the decision. So I don’t think showrooms are the way to go.

If it were up to me (and clearly it’s not), the only thing I would put in an Amazon store is Kindle and Kindle accessories, and some kind of “owner’s lounge” to steal the Apple concept. Maybe something that demonstrates everything you can get out of Prime. Then I might roll in trunk shows every once in awhile and invite my best customers in the area to whichever ones they might be interested in. And I would definitely bring enough inventory to sell out of the store — and order whatever else might be missing that my customers desire.

For me, an Amazon store would be all about the owner experience. Kindle first, Prime second, and everything else third. If you get them hooked on Kindle and Prime, the rest is sure to follow.

Dan Frechtling
BrainTrust

I would add a fifth category to the four that describe Amazon above: Brand. Amazon is a Brand — initially virtual, increasingly physical. Amazon is putting its nameplate on more and more products.

Amazon’s branded merchandise is growing, but most consumers aren’t accustomed to seeing products with the Amazon name other than Kindle. Physical showrooms, which has been the subject of rumor for years, can help overcome this disadvantage.

If speculation about new SKUs is true, Amazon could nearly fill a showroom with Kindles alone. But Amazon has had private brands like Pinzon and Strathmore since 2004, and more recently has expanded its AmazonBasics electronics accessories into automotive, home and office.

Amazon may be tempted to showcase its full line, but starting with a limited category focus will be more effective.

Paul R. Schottmiller
Guest
Paul R. Schottmiller
5 years 2 months ago

It doesn’t appear to me that Amazon is heading toward stores (showroom or otherwise).

Based on recent activity, it looks like they are focusing on leaving the shopping “online” and solving for the challenges of “immediacy” in physical distribution. Note their announcements around opening several large, highly automated, distribution centers, and trials of lockers in 7-Elevens and Rite Aids.

Imagine an Amazon with a DC location (in a lower cost area, proximate to population centers) that supplies a network of “local” lockers that are populated same day/next day (in addition to supporting standard home delivery).

This avoids the high cost of main street retail real estate and labor, as well as the challenges of highly segmented inventory associated with a large store network (required to got the product into the customer traffic zones).

Order this morning from Amazon, pick up at 7-Eleven on your way home from work.

Steve Montgomery
BrainTrust

There are at least two major changes that make this more feasible than before. The first is the tax issue. Amazon working with the states on the collection of sales tax removes the barrier from operating in those states. Based on several news stories out today, Congress will take up “legislation that would pave the way for states to force sales tax on point-and-click shoppers.”

The second is that consumers are now used to showrooming. Amazon will not have to educate the customer on the concept. What it will gain is the ability to allow customers to see and touch the items they are considering purchasing. This removes one of the remaining advantages B&M retailers have.

Roger Saunders
BrainTrust
A limited number of Amazon showrooms, strategically located, would permit Amazon to address the tax issues that states are interested in bringing to their side of the table. In addition, the showrooms will take shipping costs out of the equation, a factor that Amazon is wisely getting ahead of far down the road. Distribution costs for fleet and energy purposes are likely to rise in the coming years. The most rapidly rising portion of energy increases is going to be coming from the government sector, as opposed to from the energy companies. Federal, state, and local governments have a seemingly endless need for tax revenues (cash), which they will be relying upon in the gas tax category. Amazon showrooms should prove to be popular with their loyal patrons, as they make it easy for consumers to shop online, and then pick up at the showroom. The BIGinsight Media Behaviors & Influence Study of 24,000+ Adults points out that 1 out of 2 adults shop most often on Amazon. And, Amazon is second only to Google as a website that consumers choose to search first for products and services. Amazon is merely rounding out its engagement with consumers via showrooms.
Cathy Hotka
BrainTrust

The vast number of SKUs that Amazon carries would require Amazon to open a number of kinds of stores — one for books, one for toys, one for sporting goods. I doubt very much that this is the direction they’ll take.

Joel Rubinson
BrainTrust

As an outside observer, I have been saying for years that Amazon should open a retail presence in Times Square and Piccadilly Circus. They might do it as a theme park experience like Niketown. This is NOT about operational knowledge and profits. This is pure and simple about marketing and branding.

W. Frank Dell II
BrainTrust

The history of catalog retail stores is short and poor. I see no need for Amazon to take a step back from a successful business model. Why should they add cost (rent, inventory and associates) to their business model when it is unlikely to add sufficient sales to cover these expenses? Competition and suppliers will solve showrooming issues.

Marge Laney
BrainTrust
5 years 2 months ago

I think the Amazon showroom where customers can see it now and get it later today — “maybe,” works for the appliance example. But, not so much for apparel.

If I go to a showroom and see a dress that I want to wear tonight, can I try it on and make sure it fits before I buy and have it sent to me? Or do I need to purchase and make the final buying decision when it gets to my house and I try in on later? If the latter is the case, why should I bother going to the Amazon showroom at all?

I will go to the nearest mall and buy something I can try on, buy, and wear tonight with no hassle.

Kevin Clark
Guest
Kevin Clark
5 years 2 months ago

I’m obviously getting this wrong. Amazon would open brick & mortar stores to avoid taking on brick and mortar costs? What?

They certainly can’t follow the Apple retail model: small, beautifully presented stores with an extremely limited selection sold by deeply knowledgeable salespeople. They are the polar opposite of Apple.

Instead, maybe they might “physicalize” the Amazon experience, they way brick & mortar retailers are beginning to virtualize their stores. The store would be a gigantic shelf display of single items with QR codes making all of the product details, reviews, prices and alternatives available. I don’t know why they would bother though — with all the brick & mortar stores doing it for free.

Adrian Weidmann
BrainTrust

Amazon showroom only stores may be a valued opportunity for products and services that consumers want to ‘touch’ and experience before committing to a purchase. Cameras, power tools, and televisions come to mind. These brands may be willing to pay a premium to showcase their products in a showroom environment. On the other hand, Amazon has yet to show consistent operating profit in their current juggernaut so why take on the volatility and challenge of ‘brick & mortar’ responsibilities? Amazon should continue to focus on its strengths and let traditional retailers figure out how to successfully compete with Amazon’s business model. There is plenty of questions and challenges to be addressed for both parties in this digitally empowered consumer revolution!

david altman
Guest
david altman
5 years 2 months ago

Honestly doesn’t Amazon already have defacto showrooms in just about every retail location in the US?

With the slow (yet growing) adoption of mobility by traditional retailers tied with Amazon’s supply chain and pricing, they have a leg up on retailers.

Lee Peterson
BrainTrust

Absolutely yes. Amazon should open a few now, test it, see what happens, what they need, what they don’t need — and sooner or later, they will replace the likes of many ‘middle-man’ retailers.

The biggest rub for any manufacturer or dot com in terms of opening at retail is the operations piece. It’s not product or even logistics, it’s actually running the stores that becomes the biggest learning curve.

But if Apple can do it….

Ed Dunn
Guest
5 years 2 months ago

Amazon could leverage their associate commission-based affiliate program to third-party retailers to provide showrooms and facilitate showrooming, ordering and fulfillment.

Instead of a small retailer opening up a camera/small electronics shop, they can display a showroom of products offered on Amazon to touch/experience and allow browsers to order via their smartphone to amazon or use provided tablets, same day shipping to 3-day shipping to their home if they are visiting.

Amazon can provide the retail touch points and digital signage software for free in the same manner they provide web site with content to showcase the products Amazon sell on the associates personal web site.

Amazon leverage their same associate program to pay the retailer their commission. This setup allow the retailer to “pop-up” stores quickly, focus on driving traffic and showcasing experience while reducing any need for inventory and sales tax management. This is the most likely scenario Amazon will introduce, if not being done already.

Kai Clarke
BrainTrust

No. Their model is the model of the future. It is the reason for success. Not having a brick and mortar store is the reason why they are successful. Amazon needs to continue to focus on its success and build upon its strengths while diminishing their weaknesses.

Fabien Tiburce
Guest
Fabien Tiburce
5 years 2 months ago

If Amazon opens showrooms, I doubt it would be to showcase commodity products sold elsewhere. Instead, they would likely want the showrooms to showcase their own tablets, smartphones and whatever products/services they’ll offer next. This is another Apple play which Microsoft is now following. Would likely be a few showrooms in a few key cities to allow customers, journalists and bloggers to come and experience Amazon products.

James Tenser
BrainTrust
Perhaps I’m revealing my advanced age, but am I the only one here who remembers the once-powerful Catalog Showroom retail channel? Is Amazon out to replicate this? Best known of these were probably Service Merchandise, Best Products and Consumers Distributing. The former, I am surprised to report, still does business as an online-only retailer. In their heyday during the 1980s, SM, CD and lesser rivals had many hundreds of retail locations spread across the country. Typical format was a modest-sized front display lobby with a few counters, fat printed catalogs, pencils and order forms. The merchandise display was limited to floor samples, but the back room was crammed with goods like electronics, appliances, housewares and jewelry – delivered via conveyor belt to the pick-up window. Let’s also not forget a related business model, the catalog stores once operated by JCPenney in hundreds of small markets. These were purely order and pick-up locations where shoppers could order items from the thick JCP catalog for later delivery, as well as some made-to-measure items like window treatments. So, Amazon has some history lessons to draw upon as it formulates its own plans to establish a brick and mortar presence across the country. One… Read more »
Dennis Smith
Guest
Dennis Smith
5 years 2 months ago

YES! Thank you Adrian Weidmann for recognizing not all products are the same. Some, you mentioned digital cameras, really beg for pre-experience before purchase. Display/demo of those items will attract a fair number of customers — those you see showrooming now.

Amazon’s physical showrooms should be marketed as “service centers” supplying demos for shoppers, prepaid service on certain items, and perhaps even rentals. They should be supported by (1) membership fees and (2) manufacturer product exposure credits. As a former retailer, such a no-inventory store would be a dream. You could focus entirely on your customers who would self select themselves as valuable by paying for membership. There’s a host of member benefits that could add value to membership. See pricing example at reinventbestbuy.com.

Mike Osorio
Guest
Mike Osorio
5 years 2 months ago

I strongly advocate piloting showroom concepts around specific categories to determine if the idea has legs. It would need to be done with intention of a long-lived strategy, but limiting the pilots to a geography and a category, Amazon could test the theory of physical consumer interaction without undue risk.

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