Virtually Here

Why Is Amazon Going Crazy with Brick-and-Mortar?

In the last three years, the online retailer has moved diversely into physical locations. What’s the deal?

By Stefan Milne October 16, 2018 Published in the November 2018 issue of Seattle Met

I pick up a turkey and cheddar sandwich and carry it around the convenience store. I put it back. The cameras, presumably, note the change. I’m at the new Amazon Go location at Fifth and Marion, now one of three in the city. Cameras track what you take with you when you leave the store and log your purchase, no lines or scanners. I pick up a pesto roast beef on brioche and leave, trusting checkout to the tech.

After spending over 20 years defining online retail, Amazon has moved swiftly into brick and mortar. Amazon Books opened in late 2015. Last year, the company bought Whole Foods. In August, Amazon was in the running to buy Landmark Theatres, a national chain of over 5o indie theaters, including Seattle’s Guild 45th and Crest Cinema Center.

But why would a company that has been heralded as the destroyer of stores set up shop? And why do so in such small, seemingly tangential ways? Books, convenience stores, art-house theaters—even Whole Foods controls just 1.2 percent of the national grocery market.

Amazon declined to comment, but University of Washington associate professor of management Emily Cox Pahnke thinks the simplest answer is that while Amazon dominates online retail (nearly half that market), the company wants in on the 90 percent of shopping still done in stores. Shipping, say, a single cold soda sounds fiscally insane, but at a physical store it’s a high-profit sale.

As for books, Cox Pahnke points to research by Harvard assistant professor Ryan Raffaelli: After the number of independent bookstores plummeted 43 percent from 1995 to 2000, they rose 35 percent between 2009 and 2015. Raffaelli attributes this return to a continued need for personalization. Stores, says Cox Pahnke, become “another avenue for Amazon to engage with customers.”

In a 2016 interview at the Wharton School, real estate investor Dean Adler argued that sales, online and in-store, is now about controlling, or “owning,” the customer. “It used to be location, location, location… Now you see that being deemphasized into customer, customer, customer.” One way to capture these customers, he noted, is to create a consistent presentation across virtual and physical realms.

At Amazon Books and Amazon Go, the website interface manifests in the physical realm thanks to cover-out book displays, bargains for Prime customers, five-star ratings posted on the shelves, and crowdsourced reviews. As on the website, the line between thought and purchase all but vanishes. At Amazon Go, “1-Click Ordering” becomes Grab and Go. Online and physical spaces echoing each other might also humanize the virtual company. Authenticity is right in the names and the artisanal auras of Whole Foods and Landmark Theatres.

Of course, under Amazon’s rule, the reverse is true: These brick-and-mortar stores become more algorithmic than your standard corner shop. At the downtown Amazon Go, the app correctly charged me for the roast beef sandwich, not for the turkey I put back. It’s cool and a little creepy to know that, much as clicks have long been logged online, my every physical movement is registered.

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