Amazon.com (NASDAQ:AMZN) may be the biggest threat to brick-and-mortar retail, but the company is now, surprisingly, embracing the format it's been killing for 20 years.
The e-commerce giant is increasingly relying on storefronts including AmazonBooks, Amazon Go, and AmazonFresh Pickup to build sales and meet customers where they are.
The company recently opened its seventh AmazonBooks store, this one in Manhattan's Time Warner Center. On a recent visit, I found a bustling store that was full of customers, though most appeared to be browsing rather than buying, with only a few at the checkout counter. The store presents a highly curated selection of about 3,000 of Amazon's most popular and other selected titles, with all the books facing out, in a relatively small space. It's a notable difference from Barnes & Noble (NYSE:BKS), whose superstores generally offer a cafe, cozy chairs, and room for events like readings.
Amazon is accelerating the retail experiment with at least six new stores in the works. Though some may be surprised at its brick-and-mortar foray, there are several reasons why Amazon wants to get face-to-face with its readers. Here are three big ones.
1. Bookstores are coming back
When Amazon introduced the Kindle, many thought that physical books were headed to their inevitable demise. E-books offered a number of advantages over their tactile counterparts, including having a whole library accessible through an internet connection, portability, and pricing, as e-books were often cheaper than the paper-based variety.
However, bookstores proved to be a more durable format than once thought, and are experiencing something of a comeback. From 2010 to 2015, the number of independent bookstores increased by 21% as they found a sticky customer base that appreciated the value of a bookstore, which can host readings and events, offer conversation and discussion about books, and enable browsing and discovery in a way that the internet can't. The stores have also benefited from a 2015 agreement that allows publishers to set prices on e-books, which now usually match prices on physical books.
Not surprisingly, Amazon is jumping onto this trend. Its new stores are heavy on colorful eye-catching titles like cookbooks and children's books that one might not search for on the internet, but look appealing in the store. The company also leverages its reviews, posting the Amazon star ratings under each book with a quote from a review. There's also a section for books with more than 10,000 reviews and for ones with 4.8 star ratings or better.
2. It's all about Prime
Nearly everything Amazon does, it seems, is tied in one way or another to its Prime membership program. The $99/year service is the centerpiece of Amazon's flywheel strategy, offering benefits including free two-day shipping on selected items, access to Amazon Prime Video and the Kindle Lending Library, and cloud storage through Amazon Web Services.
At AmazonBooks, a Prime membership will get shoppers the same price on books that's listed on Amazon.com. Non-Prime members have to pay the full list price on books. That difference is a minimal benefit for Prime members as they won't save any money on shopping in the store versus online, but it does act as an incentive for non-Prime members to sign up for the service, and additionally gives the company a face-to-face opportunity to sell holdouts on the benefits of Prime.
Similarly, AmazonFresh Pickup also caters to the company's membership hierarchy -- the service is available only to Prime members, and AmazonFresh members get the additional benefit of being able to pick up orders within 15 minutes.
3. It's a device showcase
Not surprisingly, Amazon also uses its new bookstores as opportunities to display and sell its many devices, including the Kindle, e-book readers, Fire tablets, Fire TV devices, and the Echo with voice-activation assistance from Alexa.
The move follows a similar strategy from Barnes & Noble, which has at times devoted a significant and prominent portion of its floor space to its Nook e-reader. It also has shades of Apple's (NASDAQ:AAPL) retail approach, which has become the country's most successful retailer by sales per square foot by selling high-priced gadgets inside sleek, attractive stores.
Amazon's current device strategy is coalescing around Alexa, the voice-activated technology that underpins the Echo and newer models of devices like the Fire TV.
While the AmazonBooks stores are likely not intended to be profit centers for the company, pushing sales of new devices is probably the best business argument for them.
But the overarching reason for the new retail model, which extends beyond the devices, is to introduce another iteration of the Amazon brand to customers and reinforce it with loyal ones. Judging by the crowds I saw the other day, AmazonBooks seems to be off to a roaring start.