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Amazon in 2019: Betting Big on Physical Stores?

By Daniel Sparks – Updated Jan 1, 2019 at 8:45AM

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With recent store openings and plans for even more physical locations, 2019 may be the year Amazon's brick-and-mortar ambitions take shape.

E-commerce giant Amazon (AMZN -1.09%) is getting ready to open more Whole Foods Market stores in the U.S., The Wall Street Journal said on Monday, citing "people familiar with the plan." The news suggests Amazon is pleased with its integration of Whole Foods' business since acquiring the company in the summer of 2017. 

The addition of more Whole Foods locations would further the company's growing bet on physical stores, including Amazon's recent expansion of its check-out-free Amazon Go convenience stores and its new 4-Star retail locations for high-end shopping centers.

Whole Foods store in Lakewood, Colorado

Image source: Whole Foods Market.

Expanding Whole Foods

Amazon's plans to add more Whole Foods in the U.S. are part of the company's efforts to expand its two-hour grocery delivery service, according to WSJ. Some areas for new Whole Foods stores currently being considered are Idaho, southern Utah, and Wyoming, the newspaper said.

Highlighting Amazon's optimism for Whole Foods, the retail spaces the company is considering are around 45,000 square feet -- slightly larger than the average Whole Foods store, according to WSJ.

Amazon has been aggressively expanding its Whole Foods grocery delivery service. The service's availability increased from just over 20 cities when Amazon reported its second-quarter results to more than 60 cities at the time of Amazon's third-quarter update. 

Alongside the rollout of its fast-delivery service for Whole Foods groceries, Amazon has been rolling out Whole Foods discounts for its Prime members, including an extra 10% off hundreds of sale items and special weekly featured deals. 

Betting on physical stores

Since Amazon's acquisition of Whole Foods in 2017, it was clear that management wanted to bet heavily on physical stores. The acquisition of Whole Foods has already helped Amazon's revenue from physical stores swell to more than $4 billion in Q3. This compares to more than $29 billion of online sales in the same period. Plans to add more Whole Foods stores, of course, will likely help sales from physical stores grow even more.

But Amazon's growing bet on physical stores is also evident from the company's expansion of its other physical store types -- particularly during the second half of 2018. In its third-quarter earnings release, Amazon said it had recently opened five Amazon Go stores in Seattle, Chicago, and San Francisco, bringing its total Amazon Go locations to six. In early November, Amazon opened its third brick-and-mortar shop for high-end shopping centers -- stores in which it sells a curated selection of products with ratings of four stars or better. 

Between the addition of more Whole Foods locations, a growing number of Amazon Go stores, new 4-Star locations, and the company's 18 bookstores across the U.S., management is able to experiment with different store formats and numerous ways of reaching customers. It may take some more time, however, before management solidifies its brick-and-mortar strategy. But it's increasingly clear that Amazon wants to find a way to increase its presence in physical locations.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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