Retail Insights, Robin’s Blog

Amazon Book Stores

RR_Amazon-Book-Stores-Just-The-Beginning-of-the-EndIt has been credibly rumored that, following 20 years of driving book stores out of business, Amazon is now planning to get into the bookstore business. The CEO of mall operations for General Growth Properties, Sandeep Mathrani, commented to “The Wall Street Journal” that Amazon was planning to open between 300-400 stores.  And even though he later said he was not representing Amazon, it certainly was not a formal retraction.  Since Amazon keeps a tight lid on all major new ventures, they could not have been pleased with Mr. Mathrani’s comment, even with his slight backtrack.  But, in my opinion, the cat is out of the bag. Their Amazon Books test store in Seattle likely confirmed whatever results they required to give them a green light to go for it. For more on that store, see Seattle: America’s Capital of Retail.

While there has never been a doubt in my mind that Amazon would eventually open physical stores, as I predicted as far back as 2010 in the first edition of my co-authored book, “The New Rules of Retail,” and further opined in two recent articles in “The Robin Report” –  Amazon Branded Apparel and  Amazon Acquires Sears –  I thought Amazon’s first foray into brick-and-mortar stores would be in the apparel category, for all the obvious reasons, including touching, feeling and trying on for look and fit, — all of which results in an astronomically high return rate of around 40 percent when purchased online.

A little bird, whose name will remain anonymous, told me a couple weeks ago that book stores would be first in line for brick-and-mortar.  So here we are today with a nameplate called Amazon Books poised to take off, and to “get big fast.”

First Shot at Barnes & Noble Education

According to other credible rumors, and mentioned by “Business Insider,” Amazon’s first attack will strike a blow to the heart of B&N’s most profitable college bookstore division, which was recently spun off as a separate entity called Barnes & Noble Education.  BNED currently serves more than five million college students across 714 college bookstores, roughly half of B&N’s total U.S. store count.  Indications that Amazon will invade these markets arise out of the fact that they have already made partnership deals with Purdue University, UMass Amherst, and UC Davis to operate co-branded, e-commerce sites to sell textbooks, university logoed apparel and stationery, according to “BI.”

Going after college markets first is a strategic no-brainer.  Having been born with digital brain cells, this student generation is Amazon’s sweet spot. A survey from SheerID found that 77 percent of college students purchased something online in the past 30 days, and many reports have noted the struggle all colleges are having with managing the tsunami of Amazon packages that are delivered on a daily basis. Note that Amazon has a college Prime rate of $49.

Furthermore, as I’ve said before, the omnichannel model is not just for brick-and mortar-stores. It also works for pure e-commerce players like Amazon.

  1. Shop online and pick up in store results in add-on impulse purchases when in store.
  2. Or, shop in store and buy online later;
  3. Or, if the desired item is not in stock in store, order online for one-, or same-day delivery from Amazon’s rapid distribution centers.

Amazon will also open its doors with a huge competitive advantage over BNED.  Using its superior data mining capabilities, as well as online customer reviews, the stores will be stocked from day-one with those books most preferred by consumers in each location.

Also, as in the Seattle test, the books will be priced the same online and in the stores.  And why limit the products to books?  The Seattle store also carries Kindle Fire tablets and Echo voice-controlled speakers.  Further, Amazon can assort these stores with whatever other product categories they’ve identified as consumer preferences in the local markets.

Lastly, the Barnes & Noble brand has been beaten down, along with their financials, ever since Amazon launched 20 years ago. They continue to slide downward. The Nook e-reader has been a total flop. In the meantime, the Amazon brand continues to gain power and traction, particularly among younger consumers.

So, crushing BNED should be a walk in the park.

Today Colleges, Tomorrow the World

Then of course, and a final, final blow that will drive B&N out of business, is Amazon’s Teflon-proof financial model and pricing flexibility.

Amazon got “big fast” and is getting bigger, faster, using a model that Wall Street bought into and has been supporting for 20 years.  Contrary to traditional retail businesses that must produce both top and bottom line growth every quarter, or watch their stock valuations pummel, Amazon was given a free pass.  It has been unprofitable, with a few quarterly exceptions, since its launch.  Currently pushing towards $110 billion in revenues, growing at 20-30 percent a year, it seems that Amazon’s 20-year runway to “profit liftoff” just keeps getting longer.  When will this liftoff happen? Nobody knows and Wall Street and current shareholders don’t seem to care.

By the way, and proliferating daily, there are thousands of copycats of the “you don’t have to make any money” model, all sucking funding out of clueless investors.  Many have reached valuations in the billions of dollars, while not making a penny.  A case could be made that they are on the leading edge of the destruction of free market capitalism.  For now, I won’t go there.

So you get my point.  At the end of the day, if the real advantages Amazon has are not enough to win the sale, they will just use their trump card by undercutting their opponent’s price, regardless of where the bottom might be.

Amazon will emerge, having lost money because they can, while their opponent goes out of business.

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