The big daddy of ecommerce is apparently in the process of opening its first brick-and-mortar store, in New York, along with smaller outlets in California, raising questions about the future of online shopping.
The revelations about Amazon’s plans to expand into the real world, as first reported in The Wall Street Journal, are surprising. Just as everyone assumed that commerce was fast moving online, ditching physical stores with their high rents and rates, the pioneer in the field reverses course.
So what can be behind Amazon’s motivation to open physical stores? The famously tight-lipped company won’t say, of course, but a quick look at what’s been happening with the online retail giant may provide some clues.
It’s astonishing, but for one of the world’s largest companies, there’s barely a profit to be seen. Amazon has a market capitalisation of US$140 billion, but its shareholders have been growing increasingly frustrated at the lack of profits at a company that took in $74.4 billion in revenue in 2013. So where’s all the money going? The company has been on a massive expansion programme, opening huge distribution centres all over the world, and sticks with its policy of having some of the lowest prices available anywhere, even if it has to make a loss on some.
For owners of ecommerce sites watching this developing story to see how it may affect their own operations, it’s worth bearing in mind that Amazon manufacturers a number of electronic products that it may want to showcase in physical stores. This is so that people can come and inspect them, much like the way Apple does with its glitzy shops.
Amazon chiefs may be speculating that especially at peak buying seasons such as Christmas, it may achieve higher sales of its own electronic products (e-readers and tablets, a TV system and a smartphone) if people are first able to view and touch them in the real world. Perhaps with high-end products costing several hundred dollars people really need to see first-hand what they’re getting. Stores could also act as a form of advertising for these products, as well as helping to place the overall corporate brand image in the public domain.
Make no mistake, ecommerce as a way of doing business is not disappearing – far from it – and we certainly won’t be seeing Amazon and its rivals shifting the majority of its operations into physical stores. Brick-and-mortar stores are not dead, yet, and they may serve a valuable function in helping to support online sales.