Amazon CEO Jeff Bezos. Jim Merithrew/WIRED
It had to happen: Amazon is opening a store. A physical store. At least, that’s what The Wall Street Journal is reporting, citing unnamed sources. The Journal says the brick-and-mortar location across from the Empire State Building in Manhattan will open in time for the lucrative holiday shopping season.
But why?
To those uninitiated in the ways of Amazon, a physical store might seem to violate the company’s basic premise for existing. The whole point is the convenience and infinite selection made possible by online shopping, right? And all that without the sizable overhead of a brick-and-mortar space and retail employees. Well, a store—particularly one across the street from the Empire State Building—serves as a giant advertisement for Amazon’s online operation. But behind the scenes, it will work in other ways—ways that reveal even bigger ambitions for the company.
Ever since Amazon started selling more than books, the company has been trying to evolve in ways that extend beyond the online version of catalog shopping. Most recently, Amazon has been moving aggressively to grab a piece of the most lucrative retail market in which it doesn’t really compete: groceries. The Amazon Prime Fresh program has given the company an unprecedented physical presence in cities in the form of Amazon-branded trucks making same-day deliveries. According to the Journal, Amazon’s new store will serve as a kind of “mini-warehouse” to service same-day orders in New York. In other words, the point of the Amazon store isn’t really to shop at it.
Kozmo Done Right
Over the past few years, several big companies—most notably eBay, Walmart, Google, and Amazon—have each taken their own run at same-day delivery, inevitably inviting comparison with failed efforts at doing the same thing during the first dotcom bubble. Amazon stayed in business where doomed startups like Kozmo and WebVan failed specifically because it avoided promising delivery speeds that necessitated setting up high-cost physical spaces in the middle of cities.
Instead, Amazon went on a decade-and-a-half building spree (that continues today), erecting million-square foot warehouses in wide-open spaces where land was cheap. The company proceeded to transform its “fulfillment centers” into logistical marvels capable of meeting the challenge of unlimited two-day shipping promised by the wildly popular Amazon Prime.
But if Amazon truly wants to compete with its major rivals—Walmart, Kroger, and Costco—on groceries and everyday goods, two days is still too long and exurban warehouses too far away. Amazon’s biggest competitors all have a much greater physical presence than Amazon that makes them the easier, more obvious choice for need-it-now items like food, drink, and household goods. What’s more, those stores can all double as distribution centers for online shopping.
Amazon’s State of Mind
On the other hand, logistics experts say stores designed for in-person shoppers aren’t designed like warehouses, and therefore lack the efficiencies that would allow them to truly scale as hubs for e-commerce inventory. It will be interesting to see how Amazon manages that distinction in its own physical space. Erecting a flagship physical location across from the Empire State Building is obviously meant to encourage foot traffic. If it really just wanted a warehouse in the city, 34th Street is not where you’d put it. (Amazon didn’t immediately respond to a WIRED inquiry seeking confirmation of plans for a store.)
At the same time, New York isn’t lacking for places to walk in and buy groceries. The biggest advantage of having a high-profile place for shoppers to actually visit isn’t so much shopping but marketing. Having a big Amazon sign along one of the country’s busiest streets is a great advertisement, and inside, Amazon can showcase its own products, like the Kindle, along with a clever selection that serves to sell customers on services like Prime Fresh. In the meantime, the everyday inventory is somewhere in the back to serve same-day delivery customers.
Boiling down Amazon’s reasons for setting up a store, the cost of holding inventory in a more expensive urban location offsets the cost of having to drive it in every day from the hinterlands—a cost further offset, Amazon hopes, by becoming a retailer identified with everyday grocery shopping. Amazon appears to be pulling a Kozmo/Webvan but 15 years later, after building up a huge financial and operational cushion to absorb the risks that torpedoed those earlier efforts. In internet years, a decade-and-a-half is an eternity. But apparently how long it takes to create a business model that has a chance of actually making sense.
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