Rumor Report: Amazon's New Retail Store

It seems that Amazon (Nasdaq: AMZN  ) is trying to become something it's currently not -- a brick-and-mortar retailer. The e-retailer is rumored to be opening a store in Seattle within the next few months. According to reports by the blog Good Ereader, Amazon's store would sell high-margin items including e-readers, its Kindle Fire tablet, and Amazon-published books. As the Web's largest retailer, this could be the company's worst decision to date.

If the news is true, the Seattle store would go against everything that's made Amazon.com a success: limited overhead costs, minimal employee salaries, and the absence of sales tax. Amazon's made a name for itself by driving shoppers online and out of traditional retail stores. Big box stores like Target (NYSE: TGT  ) are under increasing pressure to compete with Amazon's prices.

Target recently reached out to suppliers for help protecting its stores against "showrooming" -- a trend that has customers viewing products in stores like Target and then buying them elsewhere. To avoid this type of blatant comparison-shopping I think a better plan for Amazon would be to open small-format stores within retailers such as Target.

This is a strategy that's already working well for Apple (Nasdaq: AAPL  ) . The Mac maker's success with smaller format stores inside Best Buy (NYSE: BBY  ) locations led to a more recent partnership between Apple and Target. The tech-titan plans to open 25 Apple mini-stores within select Target locations. From a business standpoint, this strategy could help Amazon test a physical presence within various markets without a significant investment.

I'm a regular shopper on Amazon.com and a loyal shareholder. However, I can't get behind the company throwing cash into a chain of retail stores. Its latest earnings report left investors concerned over management's spending habits -- and for good reason, considering Amazon spent almost as much money as it earned for its fourth quarter. Throw physical storefronts into the mix and it could be a recipe for disaster.    

Final thoughts
Of course, I could be wrong. Before 2001, the idea that Apple would operate its own outlets was unthinkable. Today, Apple's store tops the chart for highest retail sales per square foot, with $5,626. Can Amazon succeed as a brick-and-mortar? I want to hear from you. Share your thoughts with the Fool community in the comments below.   

Foolish contributor Tamara Rutter owns shares of Apple, Target, and Amazon. Click here to follow her on Twitter, where she uses the handle @TamaraRutter.

The Motley Fool owns shares of Best Buy, Amazon.com, and Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com and Apple; creating a bull call spread position in Apple; and writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 07, 2012, at 6:05 PM, MMcCord15 wrote:

    Hi Tamara,

    I suspect Bezos and company are willing to commit

    a small amount of capital (relatively speaking) to give brick and mortar a chance. They doubtlessly are studying AAPL and MSFT recent efforts in this

    direction, and wondering if they too can find an

    acceptable level of success on this front. I wouldn't get too worked up about this "experiment". Bezos and team are smart enough to abandon the direction quickly if it proves lacking on ROI. And if it is successful? Then they've found another future profit stream!

    Mark McCord

    (Long AMZN)

  • Report this Comment On February 07, 2012, at 6:18 PM, accelerando wrote:

    Hope they open hundreds. Will hasten the crash of this absurdly overpriced stock (though a great company -- can happen sometimes)

    short amzn

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