Reaction to the closure of Amazon stores
Dan Parr, Vice President at CACI, comments on the closure of Amazon’s 68 bricks-and-mortar bookstores and 4-star retail concepts throughout the UK and US.
Published in full by REACT News on 4 March 2022
Amazon’s news is a surprise – its closing of ‘4-star’ stores comes not long after they introduced the concept to the UK market. The move is most likely based on the fact that they couldn’t view their customers in the same way as they can do online, and if they did (through you having the app on your phone), not even their innovation could act quickly enough to get you to engage.
Think about your Amazon browsing: each page is right in front of your eyes. Each product position, and perhaps pricing in some instances, are curated to you the individual. In the digital space they can sell everything and have a long tail of stock with relatively little cost, which means they can be all things to all people. They are where you go for hyper convenience (a new phone charger by tomorrow morning), hyper specialist (the place to find your cactus compost), and even hyper desire (last-minute purchase of a Lego Friends Mall as a present). It’s efficient, it’s appealing for the consumer, and it absolutely works – they have extremely high conversion rates and a finely honed model.
However, in physical retail you don’t have that. The vast bulk of what we buy online on Amazon is about necessity over desire, so price and availability drive the majority of purchases. As great as Amazon’s two UK 4 star stores are, there is a limit to the number of stock lines they can carry, and they cannot flex in real time to reflect every shopper’s need to deliver a bespoke in-store experience. The investment per customer in conversion and engagement is also far higher.
The locations they chose are primarily desire, but the customer in those locations would usually use Amazon for convenience. With that in mind, perhaps a 20,000 sq ft unit in a retail park would have been better suited, where the reason behind the customer journey better matches the nature of the store.
This is precisely why their new model makes a lot more sense, looking at how and where they are growing the Amazon Fresh brand. Grocery is a specific shop, a department store is destination. A thing they will need to watch-out for, however: even in non-food, over 60% of retail spend is not online, so that’s their growth. But in reality, you need to stand for something. Their brand is uniquely digital, and not something that easily translates into physical, so what do they want the function of their stores to be?
From a landlord’s perspective, it is a saving grace that Amazon made this decision now, before further deals had been done and they were left with empty units on their hands. It’s also not implausible to see Amazon taking the physical retail world by storm in the future, given their strength and dominance in the online world and their data-driven perspective on consumers. While 4 star may not be where their future lies, they clearly is a role for bricks and mortar retail in their business model.