Facebook (NASDAQ:FB) recently opened pop-up stores at nine Macy's (NYSE:M) locations across the U.S. as part of the retailer's The Market @ Macy's initiative. The Market @ Macy's, which launched earlier this year, is an in-store pop-up marketplace that features rotating collections of newer and established brands.
Facebook's pop-up shops, which will stay in the nine Macy's stores until Feb. 2, feature products from about 100 small digital-native businesses that advertise on its platform. The pop-up stores place the products in Facebook-themed shelves with Like, Comment, and Share "buttons". Macy's will charge Facebook one-time fees for the stores, instead of taking a cut of their total revenues.
Facebook's featured brands include Two Blind Brothers, which sells ultra-soft clothing and donates its profit to medical researchers working on a cure for blindness; Love Your Melon, which sells beanies and donates its hats and half its profit to pediatric cancer charities; and sauce maker Charleston Gourmet Burger Company.
Facebook's expansion into brick-and-mortar stores might seem jarring, especially as the social networking giant faces PR headaches regarding fake news, privacy issues, and data breaches. However, the initiative actually complements the company's earlier attempts to challenge Amazon (NASDAQ:AMZN) in the e-commerce market. It's also a logical move for Macy's, which is trying to counter Amazon by expanding its e-commerce ecosystem and luring shoppers back to its stores.
Why does Facebook care about retail?
Facebook has repeatedly tried to leverage its lead in the social networking market to expand into e-commerce, but none of those attempts have paid off. In 2011, it launched local deals and let companies open "Facebook Stores", but both efforts fizzled out. In 2012, it launched Gifts, which let users buy gifts for their friends via third-party sites, but it killed off the platform two years later.
Facebook tried integrating chatbots and a payment platform into Messenger in 2016, with the idea that customers would order products via AI chats. That idea flopped because it was easier to buy products through a normal shopping app -- and because many of the bots were poorly designed.
Facebook also let businesses add "buy" buttons to their pages, posts, and ads, but those links didn't convince many shoppers to buy products on the platform. Facebook's e-commerce efforts on Instagram -- which include shoppable posts and integrated payments -- are more promising, but recent tensions between Facebook and the Instagram team could derail those efforts.
Facebook's only real e-commerce play is Marketplace, but that platform resembles Craigslist rather than a mature e-commerce platform like Amazon. Facebook is likely frustrated by its inability to create a cohesive e-commerce platform, despite its small business pages, its legions of advertisers, and its 2.3 billion monthly active users (MAUs). A successful e-commerce push could significantly boost Facebook's advertising clout and its revenue per user as its MAU growth slows down. After all, small businesses that merely want to sell things online can launch a store on Amazon and do all of their advertising there -- cutting Facebook out of the loop.
That's why Amazon became the third largest online ad platform in the US earlier this year, behind Alphabet's Google and Facebook. Facebook might consider an expansion into the retail market both an offensive and defensive move against Amazon.
But will partnering with Macy's move the needle?
Facebook is likely trying to accomplish two things with its pop-up stores. First, it wants shoppers to associate its social network with shopping. Second, it wants to blur the lines between digitally-native stores and brick-and-mortar stores -- which Amazon has repeatedly done with its Whole Foods supermarkets, Amazon Go cashierless stores, four-star stores, and physical bookstores.
Unfortunately, teaming up with Macy's -- an aging retailer that expects just 2.1%-2.5% comp sales growth this year -- isn't an inspiring move, and Facebook's nine pop-up stores aren't likely to lure many shoppers away from Amazon during the holidays. Facebook's pop-up shops indicate that the social media giant still hasn't given up on challenging Amazon -- but it's a timid and confusing strategy that probably won't move the needle for either Facebook or Macy's.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook and is short November 2018 $155 calls on Facebook and long November 2018 $135 puts on Facebook. The Motley Fool has a disclosure policy.