Wednesday, February 3, 2016

Back to the Retail Future: Will Amazon Invest Heavily in Stores?

One reason Amazon can charge such low prices is its relatively low overhead compared with brick-and-mortar stores. No rent, no large employee roster, no fixtures, no electricity. Amazon just posts a photo and description of the merchandise and patents its 1-Click purchasing process. As orders pour in, Amazon can mine the data and use the analysis to plan future marketing initiatives. Slim profit margins work fairly well in this situation.

Last year, Amazon opened a real book store (shown above) stocked with books rated by customers as 4 or 5 stars, plus Amazon's branded gadgets (Kindle for instance). The idea was to study in-store customers, analyze their buying patterns, gain experience with visual merchandising, and see how different products do in the store.

Now Amazon is reportedly looking at a serious store-retailing presence, maybe in malls. Of course, having devastated the retail book business, Amazon's competitive situation is quite different if it enters traditional store retailing in a serious way.

Online, Amazon is such a powerhouse that other retailers are testing different ways to compete online and off-line. One example is the testing of click-to-buy and collect the package free at the store as a way to compete with Amazon, even though that sometimes raises costs and slices margins. Other competitive moves include the use of apps to speed shopping and improve convenience.

If Amazon moves into a nearby shopping area, the competitive landscape will change drastically. Again.

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