Marketing, Strategy & Operations

Amazon.com Adds Bricks to Its Bag of Tricks

RR - Amazon Books“One day, we will eventually see Amazon.com in the physical world, either with stores or kiosks,” I wrote that in my book Amazon.com: Get Big Fast in 2000. At the time, that proposition sounded crazy. I wrote, “But stranger things have happened in the world of retail. Brick-and-mortar obviously goes against Amazon.com’s business model, but Bezos has been tweaking that model since Day One.”

It took almost 16 years for my prediction to come true. Better late than never.

With that nearly two-decade old thought in mind, I visited the 6,000 square-foot Amazon Books store in University Village, an upscale, open-air lifestyle mall in northeast Seattle, near the University of Washington’s sprawling urban campus.

Located directly across from a Tommy Bahama store, and adjacent to Restoration Hardware (RH) and Banana Republic, Amazon’s first physical retail presence is an interesting olio of (1) traditional bookselling, (2) the Apple store, and (3) an Amazon strategy that applies, in the words of a company press release, “20 years of online bookselling experience that integrates the benefits of offline and online bookshopping.”

Bucking Online Trend

Before we get into the store, let’s first posit the obvious question: Why would Amazon, the ultimate online retail disrupter, open up something as prosaic as a bookstore? The answer is that founder and CEO Jeff Bezos has always recognized that shoppers enjoy the experience of brick-and-mortar stores. Over 15 years ago, Bezos told an audience of independent booksellers at Book Expo America in New York, “The physical world is still the best medium ever invented. We are a gregarious species.”

In that same speech, Bezos predicted that by 2010 the Internet would account for 15 percent of total retail sales. That was overly optimistic. In 2015, online accounted for about 7.5 percent of sales.

Bezos has long understood that successful brick-and-mortar stores would remain viable by creating an entertainment experience for consumers. If an entertaining shopping experience is the criterion, then Amazon Books falls a bit short. Nevertheless, for a first foray into the brick-and-mortar world, the store offers an enticing preview of what future Amazon shops could be as the company refines its concept of “a store without walls.”

In most ways, this bookstore looks like, well, a bookstore. It’s a sleek, modern space with red brick walls, hardwood floors, exposed ductwork, oak-stain laminated shelves, with the categories clearly marked. Directly across from the ambitious international magazine section, browsers can relax on a raised padded leather bench that runs the length of the wall. The children’s reading area, where books are curated by age and reading level, has comfortable leatherette chairs that are just the right size for parents to read to toddlers.

Unlike most bookstores in Seattle, there is no place to get coffee. Not to worry. University Village is home to no less than three Starbucks units, including the new Starbucks Reserve concept, which the company describes as “an elevated coffee experience,” featuring savory small plates, beer and wine.

Why Books?

Let’s take a step back a couple of decades and look at the reasons why books were the first product category offered on Amazon.com. In 1994, while working for a New York hedge fund, Bezos was tasked to research what products could be sold on a new-fangled technology called the Internet. Surprisingly, books rocketed from being almost at the bottom of the list to the very top, with music following in second place.

Music was eliminated because of how the industry was constituted. Six major record companies controlled distribution, which gave them leverage to freeze out opportunistic outsiders that wanted to challenge traditional stores. That scenario was unlikely to happen in the book business, which at the time was involved in a high-profile antitrust lawsuit between several publishing houses and the American Booksellers Association (representing independents) over whether publishers gave better deals and terms to chain booksellers. Another factor in favor of books was the fact that there were only 300,000 active music CDs, compared with more than three million different books active and in print around the world in all languages.

Furthermore, bookselling was large and fragmented, with no 800 pound gorillas. The U.S. industry had tens of thousands of publishers, many of them with only a title or two to their credit. Random House, which was the biggest consumer publisher, accounted for less than 10 percent of the market. The combined sales of the two biggest bookselling chains, Barnes & Noble and Borders Group Inc., made up less than 25 percent of the approximately $30 billion total sales of all consumer adult books in 1994.

Neither B&N nor Borders had established themselves as a prominent global brand. Non-bookstore outlets (mail-order, book clubs, warehouse stores. etc.) accounted for 54.3 percent of the market; and independent stores 21.4 percent, according to the Consumer Research Study on Book Purchasing. The book industry was already in the midst of a shift in its sales channels. In the 1980s, Crown Books revolutionized the industry by opening up hundreds of discount stores.

During that period, Barnes & Noble and Borders were expanding into shopping malls all over the country. By the first half of the 1990s, B&N and Borders were closing their smaller stores and replacing them with 60,000-square foot and larger superstores that were often converted from bowling alleys and movie theatres. A physical store represented costly investments in real estate, personnel, and inventory. They could stock up to 175,000 titles—an impressive number, but still less than 10 percent of the estimated 1.5 million English-language books in print.

“With that huge diversity of products, you could build a store online that simply could not exist in any other way,” said Bezos. “You could build a true superstore with exhaustive selection. And customers value selection.” Amazon.com was not the first bookseller on the Internet. In fact, it was the fourth. Yes, there was a website called books.com. But even if that URL had been available, Bezos wouldn’t have wanted it. Amazon.com was always about more than books. Books were to be the Trojan Horse that enabled Amazon to penetrate the gates of retail.

Book Wars

Soon after Amazon launched its Website on July 16, 1995, it proclaimed itself “Earth’s Biggest Bookstore.” Although it didn’t have a store, a warehouse, or even inventory, Amazon could make that boast because it had the ability to special order virtually every book in the world. By that measure, every bookstore could claim to be “Earth’s Biggest Bookstore.” In May 1997, just before Amazon’s IPO, and a couple of days before Barnes & Noble launched bn.com, B&N sued Amazon in federal court in Manhattan. B&N, which was about to bill itself as “The World’s Largest Bookseller Online,” charged that Amazon had falsely claimed in its ads and on its Web site to be “Earth’s Biggest Bookstore,” when, in fact, Amazon was not “a bookstore at all…It is a book broker making use of the Internet exclusively to generate sales to the public.”

The suit challenged Amazon’s claim that it “offers over one million titles, more than five times as many titles as you’ll find in even the largest Barnes & Noble” was false because, “Amazon’s warehouse in Seattle stocks only a few hundred titles…. Barnes & Noble stocks more books than Amazon and there is no book that Amazon can obtain which Barnes & Noble cannot.” The suit, which also sought unspecified damages, called for Amazon to immediately cease running its ads and issue new “corrective” ads, and demanded that Amazon “cease and desist from making these false and misleading claims.”

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Amazon never acquiesced and nothing ever came out of the lawsuit. Interestingly, in the light of B&N’s claim that Amazon was not a bookstore, Bezos said in 1999 that, “when we first started Amazon.com, we had very conscious discussions where we talked about the fact that we were not a bookstore, but we were a book service. I do think that is a better way to think about it. Thinking of yourself as a store is too limiting. Services can be anything.”

Amazon Books

Back to the present day, Amazon’s first physical bookstore stocks relatively fewer titles than most of its competitors—about 5,000. Because this is a “store without walls,” customers are encouraged to visit Amazon.com for titles the store doesn’t stock. “Earth’s Biggest Book Store” lives. All books are displayed face-out for greater visibility and to give the customer more information. Under each book is a comment/review card from an online Amazon.com customer, overall customer ratings (up to five stars), the numbers of customer reviews that could be found online, and the book’s barcode. Each title rests in stacks of roughly 10 copies each.

Data drives the inventory in the same way that it drives the Amazon Web site. Before opening this store, Amazon possessed all the data it needed to determine the kinds of books that are popular in Seattle, particularly the sophisticated well read, demographic of University Village. Book selections, groupings and arrangements are determined by metrics such as pre-orders, sales histories, ratings by Amazon.com customers, regional appeal, and popularity on Goodreads, which bills itself as “the world’s largest site for readers and book recommendations.” (Amazon acquired Goodreads in April of 2013.)

Prices are not listed because they change frequently on the Web site. To get the most current price, the in-store customer can scan the book’s barcode at one of the many kiosks that are sprinkled throughout the store. Customers can also scan the barcode with the Amazon app on their mobile devices. The app is also used to read additional customer reviews, collect more detailed product information, and, of course, to make a purchase. Amazon Prime customers (who pay an annual fee of $99.00) are not charged for shipping.

With Apple and Microsoft stores as their neighbors in University Village, Amazon has devoted the center of the store to its proprietary technology hardware. Customers can check out Kindle, Echo, Fire, Fire TV, and Fire Tablet series, speakers and headphones. Well-trained staff is there to answer questions and demonstrate products. Kindles are featured throughout the store in each section for customers to “explore books in this aisle”. Customers can buy an eBook for their Kindle or add a product to their Amazon Wish List, so someone else can buy it for them.

The Bottom Line: It’s an Omnichannel World After All

So, after all is said and done, what does the Amazon store mean for the future of retail? In our omnichannel world, consumers interact with a brand through digital devices, phones, television, and, of course, brick-and-mortar stores. Every channel matters and is integrated into the entire customer experience.

With its same-day deliveries and experimentation with delivery drones, Amazon is all about instant gratification. What says instant gratification more eloquently than brick-and-mortar stores? You can buy an item and immediately have it in your hands? What a concept! The brick-and-mortar experience will never die because we are all social animals. Retail is where the economic order and the social order meet.

What’s interesting to me is how Amazon is adapting its sense of social community to brick-and-mortar. The Amazon bookstore, like every other bookstore, wants to be a place where readers meet and hang out. On a bulletin board in the store, the company highlights its “Literary Partnership,” which provides grant funding to nonprofit literary organizations in Seattle. A “Literary Community Board” promotes author readings in venues around the city.

Back in its earliest days, Bezos and company created one of the Internet’s first virtual customer communities by connecting readers who shared similar tastes. The company fostered this collective feeling by encouraging readers to write and submit book reviews, which were posted on the Web site—free content. Amazon also introduced the cross-selling line: “Customers who bought this book also bought [similar books in that category].” This “audience participation” enabled readers to feel that they were making a contribution to the thoroughness of the Web site’s information. Authors of the books were invited to participate in the community by answering a series of online interview questions.

Although Amazon has not made public its plans to roll out more versions of Amazon Books, a reliable source in the retail-leasing world told me that Amazon is in negotiations with shopping centers in strategic parts of the country. With all the customer data that the company collects, those stores will be curated for their specific markets in the same exacting way as the University Village unit.

After closely watching and writing about Jeff Bezos for almost two decades, I know that he is not someone to be underestimated, nor is he afraid to be second-guessed or third-guessed. “We are very comfortable being misunderstood,” he says. “We’ve had lots of practice.”

Just as he continues to reinvent the retail experience through the Internet channel, Bezos wants to reinvent the brick-and-mortar retail experience. Perhaps in a Bezos World, there will be no need for buyers or merchandisers because the data will reveal not only what to buy but also when to buy it. The company will know what has already sold, and what will sell in the future. If you like this, you’ll love that. Who needs a buyer?

While it’s true that other omnichannel retailers are using Big Data to better know and serve their customers, Bezos demands that Amazon does it best. Bezos will insist that his company employ “Bigger Data” because Amazon is first a technology company, which happens to offer a lot of products and services. Bezos has always been a technology geek. He graduated Princeton University summa cum laude in 1986 with a B.S.E. in Electrical Engineering and Computer Science, with a Grade Point Average in his department of 4.2 out of 4.0 (Princeton gives a 4.3 for an A+) and a 3.9 overall grade point average. For his thesis, he designed and built a special purpose computer for calculating the distances between strands of DNA.

So, why stop at bookstores? I could see Amazon opening specialty stores that sell electronics or pet supplies or health and beauty aids, and so on. Or maybe Amazon will build large structures that sell many of the products they sell online under one roof. I think they call that a “department store” or a “shopping mall,” both of which, some say, are in their final days.

Wouldn’t that be a delicious irony?

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