The report has not been confirmed by Amazon, which has told the media that it does not comment on rumours or speculation. However, recent years have seen the e-commerce pioneer steadily increase its investment in physical retail.
Since opening its first bricks-and-mortar store, a bookstore, in 2015, Amazon now runs more than 20 bookstores and more than two dozen 4-star stores in the US. The 4-star stores are typically around 4000 square feet, according to The Wall Street Journal, and stock a range of highly rated products.
More recently, the company’s offline efforts have been in the convenience space, with the launch of its cashierless Amazon Go stores, and grocery, following its acquisition of the upscale US grocery chain Whole Foods in 2017. In April, Amazon opened a hair salon in London.
Still, the reported move into department stores would represent the retailer’s biggest bet on bricks-and-mortar to date. And it would come at a time when some long-running department stores are closing up shop. What could be driving the move, and what would it mean for the competition? We asked four retail experts to weigh in.
Why would Amazon open a department store?
According to GlobalData, US department stores have seen their overall share of retail sales slip from 14.5 per cent in 1985 to about 2.9 per cent today. And who has taken their place? Online retailers such as Amazon.
“The success of the department store was founded on the idea that everything you could ever need was gathered together under one roof, easy to find, and easy to purchase. An online marketplace such as Amazon fulfills this role remarkably efficiently, and arguably better,” former Myer CEO Richard Umbers told Inside Retail.
“Products are easy to find (the search box), easy to buy (the shopping cart), and the online marketplace is also catering for all customer groups at once – each customer being served a unique experience based on their preferences and past behaviour.”
So why would Amazon, which has both led to and benefited from the decline of department stores, open its own? Craig Flanders, managing director of digital agency Spinach, compared the move to search engine giant Google running TV ads.
“Any time you see an all-pervasive brand like Google putting a 30-second ad on your TV screen, you realise that everybody is trying very hard to find customers that they’re currently not finding,” Flanders told Inside Retail.
For Amazon, the segment that it’s not currently reaching is customers who prefer to touch or try on products in real life before buying them.
“This could be a play by Amazon to engage those people,” he said. “I would assume their objective will be to feed people back into their existing online machine over time.”
Richard Facioni, founder and CEO of ACTA Capital, a private equity firm with a focus on retail, agreed, saying it’s all about convenience and allowing customers to shop when they want, where they want and how they want.
“Plus, you’ve had global consolidation in department stores with a number of closures, bankruptcies and department stores shrinking their footprints. So I’m not surprised by the move,” Facioni told Inside Retail.
Another reason could be the opportunity to offer click-and-collect services to Amazon’s online customers.
“Large department stores in the US and UK are continuing to compete online and are leveraging their stores to deliver consumer experiences that Amazon currently can’t deliver without a physical footprint,” Bradley Grinlinton, head of retail and consumer products at Publicis Sapient, told Inside Retail.
“With the pandemic-fuelled growth in BOPIS [buy online, pick-up in-store] as consumers preferred fulfilment method across the majority of their purchases — as illustrated in the Publicis Sapient Digital Life Index research — it’s not surprising that Amazon have chosen now to make their move into playing seriously in this space.”
For Umbers, this is further proof that omnichannel retail is the path forward.
“Omnichannel offers the best of both, a chance for the customer to ‘love the brand’ in-store, combined with the efficiency of the online shopping cart,” he said
“A combined physical and digital omnichannel offer is mutually reinforcing – both channels benefit from an integrated but distinct offer.”