Should Amazon open clearance stores?

Discussion
Amazon 4-star store - Photo: Amazon
Apr 05, 2021
Tom Ryan

Amazon.com was considering opening a clearance concept selling unsold inventory of home goods and electronics at steep discounts prior to the novel coronavirus pandemic, reports Bloomberg.

“It’s a way to be able to clean out warehouses, and get through inventory without having to destroy it,” one of the insiders familiar with the plans told the news service. “It is keeping with the value proposition of Amazon, keeping price at the forefront and allowing customers to get access to products at low cost.”

The concept would have complemented the sale online of overstock and clearance items through Amazon Outlet as well as returned and used items through Amazon Warehouse. As it has gained leverage, Amazon has also increasingly encouraged suppliers to take back unsold items.

Due to space reasons, the focus in stores would have been on smaller items such as home goods, electronics, toys, baby products and kitchen items, similar to the Amazon 4-Star store format. Apparel wasn’t being considered because carrying multiple sizes would take up too much square footage. Amazon was also considering permanent as well as pop-up locations in malls or parking lots.

The plans were preliminary and shelved as Amazon focused on fulfillment during the pandemic and the rollout of Amazon Fresh.

Off-pricers such as TJX and Ross Stores in recent years have thrived despite digital’s disruption.

Among relative newcomers to off-price selling, Macy’s launched Backstage in 2015 and saw the banner outperform its full line stores by more than three times in the latest quarter. Dick’s Sporting Goods last year launched a new off-price concept focusing on apparel and footwear that is expanding rapidly. Best Buy began opening Best Buy Outlet locations selling clearance and open-box merchandise in 2016 and it now has 14.

Amazon may have also stocked third-party seller inventory in its discount concept.

On March 31, Amazon sent a letter to third-party sellers who store inventory in its warehouses through Fulfillment by Amazon (FBA) about the benefits that Amazon Outlet offers in managing excess inventories. Amazon wrote, “Featuring products via Amazon Outlet can help you boost sales, improve cash flow, optimize inventory levels, and reduce storage fees.”

Categories promised to be given increased exposure due to current trends include lawn and garden, sports, outdoors, tools and home improvement, and apparel.

DISCUSSION QUESTIONS: What do you think was behind Amazon’s exploration of clearance stores and will they still make sense post-pandemic? Is optimizing clearance a less efficient process online than in physical stores?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Don't hold the merch. Mark it down and let it go. Adding an outlet option is one of the many ways to do so."
"Amazon leaves no stone in retail unturned."
"I don’t know if clearance stores are the answer. They might think about mass donations."

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32 Comments on "Should Amazon open clearance stores?"


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Mark Ryski
BrainTrust

This is a great idea for a several reasons: 1.) it’s better for the environment as less material will end up in landfills; 2.) treasure hunting is fun for lots of shoppers; and 3.) it generates some incremental sales revenue that otherwise would have been lost. Some things just make sense – this is one of them.

Neil Saunders
BrainTrust

There are a number of physical clearance centers around the country which sell online returns and unwanted products at very good markdowns. They are extremely popular, as are other discount concepts such as off-price. Online does work for this type of concept, but it isn’t always as effective as an actual store where people go to enjoy the treasure hunt and to snag a bargain on impulse. With the volumes it deals with, it likely makes sense for Amazon to have some physical clearance centers.

David Naumann
BrainTrust

Off-price discount stores have been a hot retail segment for years and this trend has no sign of letting up. The Amazon clearance store concept is likely an obvious solution to help its sellers move obsolete or excess inventory that isn’t expected to sell at full price. It is a win-win for both sellers and Amazon.

Suresh Chaganti
BrainTrust

Amazon is rightly putting more into the physical footprint. When we look back to the era where Amazon used UPS to deliver its shipments, I don’t think Amazon would have been the kind of force it is today, if it did not invest in logistics. Beyond logistics infrastructure, it is a reminder to consumers how ubiquitous it has become, and it is a part of our daily lives.

Amazon clearance stores are an extension of that along with Amazon Fresh. The big advantage for Amazon is getting in with all of the late mover advantages. I bet the locations will be chosen for most effectiveness – to cross sell Prime subscriptions, and with capabilities that double up as MFCs and such.

Paula Rosenblum
BrainTrust

I have a hard time understanding why this is the concept that drives Amazon into brick-and-mortar stores.

I am more used to retailers doing their clearance sales online as a traffic driver, but then I don’t suppose Amazon needs traffic drivers.

jschechter
Guest

They have several storage formats now (Go Stores, Bookstores, Grocery) and this format should give them new access to a new market segment. Low income, treasure hunters that prefer an in-person experience.

Christine Russo
BrainTrust

Time In stock is the most overlooked KPI trounced by focus on margin. Big mistake. Holding on to goods at a higher margin thinking they will move ties up cash and space. Amazon is a game changer but retail is retail and sometimes things don’t move the way they were planned. Don’t hold the merch. Mark it down and let it go. Adding an outlet option is one of the many ways to do so.

Dick Seesel
BrainTrust

As the old retail adage goes, “The first markdown is the best markdown.” Retailers tend to focus on gross margin instead of GMROI, which is a function of both margin and turnover. If the good aren’t turning, the margins don’t really matter.

As to the cost and complexity of running clearance centers — given the breadth of Amazon’s assortments and the huge amount of inventory it carries in its distribution centers (not to mention its third-party vendors), I’m not convinced that physical stores are the way to go for Amazon despite the power of its brand.

Steve Montgomery
BrainTrust

Dick, I remember when I first entered the business being told a similar phase — the first cut is the kindest. Came in very handy when we took over a 700 store chain that was loaded with merchandise that none of the suppliers wanted back. We drastically reduced the prices and advertised the daylights out of it and very soon we had locations that had fresh merchandise the customers actually wanted to buy.

Lee Peterson
BrainTrust

We’ve heard this before: book stores, pick up centers, 4-Star stores, Go, Fresh, on and on. But in reality, they all feel like experiments rather than what we used to consider “chains” back in the day. A telling piece I read asked an Amazon manager why they were opening book stores and he said, “to gather information.” I think that’s true for all physical adventures by this e-commerce giant, including discount stores. They know better.

PS: I thought Amazon was the “anything store,” doesn’t “anything” include “discount” merchandise? No?

Paula Rosenblum
BrainTrust

I thought that’s why God made Prime Day.

Kenneth Leung
BrainTrust

My thoughts exactly. Prime Day seems to be to be the clearance day. Why invest in moving the excess inventory to a clearance center with additional markdowns to move it out when you can make it a Prime Day special for 99 cents?

Jeff Sward
BrainTrust

Is this a “should” question or a “have to” question? Managing third-party relationships is different than managing your own vertical business. And now with Amazon’s big push into their own proprietary brands, they definitely have their own inventory to deal with. And physical stores may be the best way to liquidate very low margin excess inventory.

Keith Anderson
BrainTrust

Amazon has played with similar concepts in both the virtual and physical realms, for example with the Warehouse Deals section of its site and the roving Treasure Truck promotions. It also owns Woot, one of the original “surprise and delight” experiences in e-commerce.

But as TJX, Costco, and others have proven, there’s still demand for a serendipitous “treasure hunt” that is hard to reproduce in a fully digital format.

It makes sense that Amazon would continue testing and learning at the intersection of physical and digital.

DeAnn Campbell
Guest

Given the recession proof popularity of discount stores, this would be a smart next step for Amazon and a great way to get rid of excess unsold inventory without the added cost of shipping. The sheer size of Amazon drives them to find every more ways to take control of their own operational needs, including creating their own financing for customers, healthcare for employees, their own shipping network. This is just a logical next step and builds off of what they have already learned from Whole Foods, Go and 4-Star programs. If Amazon has shown us anything it is that they are smart and continuously think ahead.

Kai Clarke
BrainTrust

This is just another name for Amazon’s Outlet, and another function that Amazon’s warehouse already compliments to the Outlet as well. Putting in brick-and-mortar stores would have to have a tremendous value proposition over and above the online positioning that Amazon already has. Considering the lack of a call to action, despite the pandemic, it appears that the physical store does not offer enough leverage over the online positioning for Amazon (why would it?).

Venky Ramesh
BrainTrust

While the Amazon Clearance store is a fantastic idea, I think setting up a physical store to sell already steeply discounted items will only erode the margin further. This is a great example. Can they not create an online experience that provides their customers the enjoyment of a treasure hunt to drive impulse purchases?

Suresh Chaganti
BrainTrust

I see this as a way to extend their physical presence, not just clear off the inventory.

Richard Hernandez
BrainTrust

It branches Amazon more into the brick-and-mortar arena and looking at other clearance-based retailers, it has the potential to do well in the market – pandemic or not. People like to treasure hunt to find deals, so why not?

Dave Bruno
BrainTrust

In theory, this seems like a good idea, but Amazon’s track record with brick-and-mortar is less than stellar. Perhaps they should consider a pop-up strategy. Opening temporary locations that entice shoppers with scarcity and a treasure hunt without long-term brick-and-mortar commitments seems like a safe way to start, at least.

Ben Ball
BrainTrust

I don’t see it. In the first place, the idea is not to be holding “excess inventory.” With all the emphasis Amazon places on AI and efficiency in general, excess stock should be nonexistent for all third-party vendors and suppliers and minimal for the Amazon brands. Second, Amazon should offer an online bargain basement rather than initiating a brick-and-mortar space for this. Sportsman’s Warehouse, BassPro and others do this very effectively. The only cost reduction versus their online system I can imagine would be that excess retail space is available at such rock bottom prices that it is cheaper than their own direct-to-customer shipping.

Doug Garnett
BrainTrust
11 days 3 minutes ago

Amazon might be able to make it work. And I don’t think it is a good idea. I’m sure they explored the idea for all the ideas Tom gave above — and because “everyone else is doing it” (although some/many goods at the outlet stores are made for outlet only).

But does Amazon need any assistance in their race to the bottom? They already lose money on retail style sales (making money on their own creations as well as AWS and content). Taking this a step further seems a poor strategy — especially as it could make their most public retail effort one of discount. They should not want the powerful presence of a physical store to primarily be a presence which says “cheap.”

Shep Hyken
BrainTrust

It’s obvious why Amazon would explore the idea of a clearance option, and it makes as much sense post-pandemic as it did pre-pandemic. This is standard operating procedure for some well established retailers. Why should anyone question this. If you don’t mind getting last year’s (or earlier) merchandise, then this is great for both Amazon and the retailer.

Ryan Mathews
BrainTrust

Obviously when you have “endless shelves” you are going to have endless excess inventory. I had a recent experience with Amazon where they misdelivered a package to me. I called them and told them they had the wrong address and that one of the 30 odd trucks a day that passes my address should pick it up. Their response? Open, if you like what’s inside, keep it. If not, toss it.” Cheaper, it seems, than processing a return. As it grows Amazon is going to have to do something with all the returns and unsold inventory. I don’t know if clearance stores are the answer. They might think about mass donations. As to the second question, the right answer would seem to be finding a way to not take possession until as close to an order as you can. Otherwise it seems physical stores have a slight advantage, but it is still a huge problem that only promises to get worse.

Gene Detroyer
BrainTrust

Amazon has over 100 distribution centers around the U.S. To me, those are the first 100 plus locations for an outlet. Efficient, minimal investment and a discovery adventure for the potential shopper.