No Stores Planned by Amazon, But Should There Be?
First London’s Sunday Times reported that Amazon.com was looking at
locations around England to establish stores where shoppers could go to pick
up items ordered online.
Shortly thereafter, an Amazon spokesperson said the
company has “no plans to open physical stores anywhere in the world.”
That would signal the end of the
story but it does raise an interesting question. Should Amazon.com be looking
at opening physical store locations either as a pickup-only option or as a
full retail establishment?
The original Times article reported Amazon was looking to “cash
in on rising customer demand for click and collect services where shoppers
buy online and then pick up their goods from a nearby store.”
“Consumers who are
fed up with waiting at home for deliveries are increasingly choosing to buy
online and collecting goods at a time that suits them,” wrote the reporter.
The article mentioned
Argos, John Lewis and Tesco as merchants offering online ordering and in-store
pickup. Argos, according to the Times,
estimates 18 percent of its online sales are picked up in stores. The company
expects half the televisions it sells for Christmas to be in-store pickups.
Discussion
Questions: Would Amazon.com benefit from having locations for consumers to
pick up goods ordered online or is it better off avoiding this strategy? Does
in-store pickup give competitors of Amazon.com an advantage?
One big competitive advantage of Amazon.com is that customers do not have to be hassled by going to a store to pick up the products. They also don’t have to pay expensive rent on brick and mortar locations. I see these eBay stores scattered about in low-rent strip malls. What’s up with that? Haven’t been in one yet. I’d rather have the US postal service do my work for me.
Amazon.com is a river that is flowing rapidly and smoothly. It has the expertise to know how to navigate successfully. Many other retailers are paddling away on slower-moving streams. Amazon should stay within its banks so as to put more money in its “outside” banks. I’m certain Mark Twain would say that Amazon stores would be a distraction.
It would seem difficult for Amazon to offer pickup for the millions of items it sells online. The only brick and mortar retail play that makes potential sense for Amazon would be to only feature its best selling items. But why would they want to do this?
Amazon has built consumer loyalty through its unprecedented product selection, one-click check out, free shipping and great customer service. Why jeopardize this by opening retail locations?
Always keep looking, try new things, be willing to make mistakes, never be satisfied with the status quo because in the world of retail, if you are you will be gone.
Do I think pick-up stores are a good idea for Amazon? NO! Because of the broad selection of merchandise they carry. But if they don’t try it, how will they ever know for sure?
The question posed doesn’t include the third alternative which is to open stores where customers could shop and compete directly with other brick and mortar retailers. I was unsure if that meant it was a forgone conclusion that wouldn’t make sense. However, I think this is an unlikely scenario.
The second alternative is to open selected pickup locations. The economics include some pluses and minuses. Removes the cost of individual delivery but product still has to get to the pickup locations. The pickup location has to be staffed and a bad experience in that final moment of truth could negatively impact customers’ perception of the overall purchase process. Is that better than having someone leave your item outside your door in the rain or snow? Not sure, but at least Amazon is not directly to blame for the delivery. On the other hand, if I could pick it up, I could do so on my time table (assuming it matched their hours).
Frankly, I enjoy not having to run out to pick up the Lego Pirate Ship that I just ordered for our oldest grandson (was out of stock at every retailer we went to.) Having stores for pick up would certainly add complications to the business model. Bottom line, I would think the pick up model is unlikely given the growth that appears to be still left in the current model.
I’ve often wondered about this. I agree that it doesn’t make sense for Amazon to add the overhead of store locations, and it really doesn’t jibe well with their affiliate strategy. Heck, half the stuff I buy on Amazon isn’t even technically sold by them anymore–or fulfilled. But it would be an interesting service–and model–if they followed the eBay location strategy: franchise out a pick up/drop off location, and open it up as a service fee for affiliates to get even deeper into the long tail–“hey affiliate seller, you don’t even have to have a fulfillment capability. Just drop it off at your local Amazon store and we’ll pack and ship it for you, for a nice little percentage or flat fee.”
Not everyone wants (or is able to have) stuff dropped off at their front door. If it’s franchised, so that Amazon isn’t really bearing the largest piece of the risk (or cost), then I could see something like that working.
They have just recently become great at what they do. Getting even better should be their focus as many others are out there seeking to beat them at their game. Taking their eye off the ball for one moment could be risky.
The best direction for Amazon would be to continue to seek excellence in their developing expertise and maintaining their leadership. Expanding selection and maintaining their improved service and execution will mean continued success. That’s not to say for them never to seek new ideas or new ways to grow their business, but at this point they haven’t even tapped into a small percentage of the potential in their core business. Growing what they do well is far less costly than growing what they don’t know or might not be able to execute well. Few have.
What the press release didn’t elaborate on is the possibility that another party will be opening locations to service Amazon pick-ups.
I think we’ll definitely see some form of pickup location but it’s anyone’s guess as to who will operate them.
On the surface, this doesn’t seem to make sense. For starters, there are the obvious incremental costs of 4-wall operations–occupancy, payroll, taxes, etc, etc. There is also the implicit cost and complexity of managing inventories over a much broader area. Finally, there is the fact that this is completely outside of Amazon’s brand. Gateway tried this as a way to better compete with Dell years ago and ended up closing the stores, ostensibly for the reasons above.
The apparent upside of this is to add customers that don’t shop Amazon because they don’t want to wait for delivery. The recent tests of same-day delivery in major markets would indicate that they think this is potentially plus business.
Time will tell.
Shipping and wait times are the biggest challenge for online stores. Offering pickup has worked well for some retailers but most fall flat on execution. Hearing things like: “I only got half my order” and “They have no idea what I’m talking about or who I am at the store” makes me wonder if Amazon can do a better job at the store level. Sounds like they may be contracting this out so I would hope that Amazon holds any third party to their standards. We try in cases like this but it takes much more to ensure outstanding execution than a paragraph in a contract.
Look, this Bezos guy seems to be pretty darn bright! If he decided to open stores then maybe he knows something we all don’t. However, because he is so bright, surely he won’t be opening any Amazon stores here, there or anywhere! Just doesn’t seem to make any sense at all. (But then again, neither did Amazon in 1994.)
If a retailer already is in the brick and mortar business, it makes ultimate sense to integrate the online business with not only store pick-ups but also store returns. The cost of making that link is nil. The upside of getting a person to visit the store is invaluable. Best Buy and Staples are on the cutting edge of this and any retailer that doesn’t integrate it is myopic.
On the other hand, why, oh, why would a successful internet retailer want to add the expense, inventory, and labor complication of building brick and mortar stores? There is little upside to providing a pick-up point. The statistics quoted are for retailers that already have brick and mortar stores. One would even question why half of those who order televisions online would pick them up in store, when many who buy inn a physical store still choose to have them delivered. Those flat screen TVs are awfully heavy!
Unless one needs it tomorrow, for the consumer the cost in dollars and cost in time needed to pick up when something can be delivered directly and quickly is an nonequivalent equation. Delivery wins almost every time.
Seems to be a fairly strong consensus on why they should NOT open stores. I tend to agree with all the points made, including the one that Bill Emerson made on the historical point of Gateway trying exactly the same thing. HOWEVER, Gateway is by no means the organization that Amazon is. Also, As Nikki pointed out, there could be a franchise opportunity here, as with eBay drop off stores. Additionally, with so much vacant, cheap retail rent around the US, if not the world for that matter, why couldn’t they try something like:
> Secure a limited number of vacant/ cheap retail locations worldwide. Like Times Square (YES, there are vacancies there). Perhaps like the original few Apple Stores did.
> Open “Display Only” stores, like the Samsung Store in Manhattan, with only hot merchandise.
> Operate it as a pick-up store, with minimal labor, and only inventory that is on display, not for purchase, and the holding inventory of purchased goods waiting for pick up.
> Create an attractive franchise model to permeate the brand into a brick-and-mortar presence with very low risk.
NOW, what do you think about them opening stores?!
It’s 17 degrees here and the FedEx lady–in her shorts–just came and dropped one of the gifts I ordered. That’s the beauty of Amazon. Even when I can get out, the items I order keep rolling in. Last year, every single gift got to my house in time for Christmas, and we were buried in 3 feet of snow for two weeks.
I highly doubt people would bother going to pick up their items. And why waste the overhead?
Two points I haven’t seen raised here:
1. If they set up physical locations, they will definitely need to charge sales tax. I think we can all appreciate Amazon’s desire to avoid this.
2. On the other hand, experience (and data) tells me there may be strong customer preference for some products. For certain (very large) product categories I have seen customers choose in-store pickup 60+% of the time. Making the economics work may be difficult but whenever I see 60+% of customers showing a preference, I would try to unlock it.
One benefit of in-store pickup for a retailer is that the customer may purchase additional items during th pickup. A partnership with Amazon for a retailer could have that benefit of driving the traffic into the store. This could, crazy as it seems, make sense for a grocery or chain drug store with many convenient locations for the customer, but that doesn’t necessarily sell the breadth of product you’d find on Amazon. Perhaps Amazon customers receive a special loyalty card for points or discounts on store items to encourage in-store purchases.
This way Amazon doesn’t have to invest in its own retail space.
Otherwise, I don’t see how picking up at the local post office after a missed shipment is any less convenient than picking up at a retail store….
Ultimately, when enough shoppers want something, someone will provide it to them. As Walmart and Amazon increasingly go head to head, or Tesco and Amazon, the legacy retailer will always have whatever advantage physical location gives them now. What Amazon has that they do not have is a nearly limitless “long tail,” which is incredibly attractive, and which they are incredibly skilled at managing to sell from, the big head.
This is the #1 failing of bricks and mortar retailers around the world–they have NO IDEA how to actually sell from the long tail, instead just shoving it all into the shoppers face, and expecting them to “find what they want.” (See The Misguided Bobbing of the Long Tail)
The question is whether Amazon needs to own or partner with a distribution network (How about Amazon-Kinkos-FedEx stores?) or whether Walmart and other retailers will evolve to really SELLING the big head, as Amazon does? Amazon has the nimbleness and selling skills all on their side. But Walmart, Tesco, et al. really have more potential.
I agree with all the comments about adding costs and the ability to offer only limited inventory. One other point also comes to mind.
Whenever I see customer satisfaction ratings for major retailers Amazon is always at the top. (Typically these comparisons define retail as both pure play online and bricks & mortar merchants as a single category.) It makes sense. Those that serve customers face-to-face have many more touchpoints and more chances for breakdowns in service by staff. Their ratings frequently demonstrate this challenge.
Amazon has a system driven by computers that provide a standardized deliverable and fewer opportunities to fail. Unless there is some huge financial reward, I can’t imagine how it would be worth the risk of opening even one storefront operation, giving up any control within their process, adding many more touchpoints, and putting their reputation at risk.
NO! Just a vote.