AMAZON WITH BRICK STORES

Amazon would need a different supply chain for store retail than what they have for e-commerce retail. 

Amazon Stores: Why All Retailers Should Be Afraid

Amazon’s plans to open physical bookstores goes way beyond books

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Merchandise at an Amazon.com fulfillment center in Poland. Opening stores could help Amazon reduce its fulfillment costs. Photo: Reuters

By

Miriam Gottfried

Miriam Gottfried
The Wall Street Journal
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Feb. 3, 2016 12:53 p.m. ET

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Amazon.com AMZN -6.14 % is becoming a brick-and-mortar bookseller. As it was with its e-commerce odyssey, books may only be the beginning.
The retail giant plans to open as many as 400 bookstores, The Wall Street Journal reported Tuesday, citing comments by the chief executive of mall operator General Growth Properties. GGP -1.35 % That news sent shares of Barnes & Noble BKS -0.72 % down more than 8% Wednesday morning. But investors focusing on booksellers as the potential victims of Amazon’s move may be missing the bigger picture of what this experiment could mean.
After all, selling books is how Amazon got its start. It is a business the company knows very well. And if bricks-and-mortar stores help it accomplish its goals, there is little reason to think it will stop there. That should make all retailers worried.
Indeed, many of the reasons Amazon may be interested in brick-and-mortar stores have little to do with books, specifically. Shipping from a store instead of a warehouse or giving customers the ability to buy online and pick up in store or return items to a store could help Amazon trim its fulfillment costs, which amounted to 13% of sales in 2015 versus 12% in 2014.

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Counterintuitively, having physical stores could help Amazon become more profitable. Shipping costs are variable costs for e-commerce players, meaning they rise along with sales. Brick-and-mortar stores, on the other hand, have fixed costs such as labor, rent and utilities and can gain leverage by boosting sales on top of them.

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Beyond that, the physical store environment encourages different shopping habits than e-commerce. While someone buying an item on Amazon’s website would enter the item’s name and search for it, a shopper in a physical store would be more likely to browse and make impulse purchases.
Most importantly, unlike traditional retailers, whose profitability has been hurt by the move into e-commerce, Amazon will be moving in the opposite direction, with physical stores being designed to complement e-commerce.
For investors, Amazon’s move into bricks and mortar isn’t just about the books.