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Amazon Closing Pop-Up Kiosks Is Just Part of a Wider Brick-and-Mortar Strategy

By Danny Vena – Updated Apr 11, 2019 at 5:37PM

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As the online sales giant winds down its first venture into retail, it's using the lessons learned to guide bigger plans. (AMZN -0.59%) is the undisputed e-commerce leader in the United States. By some accounts, the company controls nearly 50% of online sales in the country. The digital seller is also quickly expanding its roster of physical retail locations through such ventures as its Whole Foods Market grocery stores, Amazon Books bookstores, and the automated (and cashier-less) Amazon Go convenience stores. It even operates select stores called "Amazon 4-star," which carry only items that are top sellers on its website and rated four stars or higher, or are new and trending.

Then there are the dozens of Amazon Pop-Up stores located in malls, Kohl's stores, and Whole Foods stores. Unfortunately, Amazon announced this week that it will shutter the 87 pop-up kiosks to focus on its bookstores and 4-star locations.

When you take a closer look at the purpose, growth, and eventual demise of the kiosks, you see that Amazon has actually developed a consistent approach toward its physical stores, even as it continues to evolve its brick-and-mortar strategy.

Check out the latest earnings call transcript for Amazon.

Two people walking down a sidewalk under an Amazon Go sign.

Image source: Amazon.

Let me introduce you to Alexa

The e-commerce leader plans to close the Amazon Pop-Up stores by the end of April 2019. The small "store-within-a-store" kiosks are staffed by Amazon employees working to introduce customers to the company's growing list of electronic gadgets, including Fire tablets, Kindle e-readers, and its best-selling Echo devices (which incorporate the Alexa digital assistant).

It's important to remember that the voice-activated smart speaker was a revolutionary new product when it was introduced in 2015. Having the store kiosks gave consumers the opportunity to interact with the nascent product before considering a purchase.

What started out as an experiment with a few locations in mid-2015 quickly grew to dozens of kiosks nationwide, and plans for up to 100. The purpose of these locations was simple -- to familiarize consumers with Amazon-branded products and drive additional traffic to Amazon's website.

The template Amazon developed for its kiosks -- experimenting to determine the optimum size, location, and selection of products, followed by a rapid expansion -- is one the company continues to use today as it works to further expand its retail empire.

A familiar strategy

Amazon, widely criticized for the demise of many neighborhood bookstores, somewhat ironically opened its first Amazon Books location in late 2015. After experimenting with the size and product selection of a few brick-and-mortar stores, Amazon quickly opened other locations across the country, and now has 19 with plans for many more.

The company used the same strategy with its Amazon Go store. The automated convenience store is blanketed with cameras and sensors and combines computer vision and artificial intelligence, eliminating the need for traditional checkout lines by tracking items as shoppers remove them from shelves.

After opening the first experimental Go store to employees on its Seattle campus in late 2016, Amazon opened the store to the public in early 2018. The concept has expanded to 10 locations clustered around Seattle, Chicago, and San Francisco -- with many more planned. Reports late last year indicated that Amazon could open as many as 3,000 of its high-tech convenience stores by 2021.

A Whole Foods Market in Addison, Texas

Image source: Whole Foods Market.

Growing grocery ambitions

The e-commerce giant surprised many by getting into the grocery business in mid-2017 when it acquired Whole Foods Market. And Amazon turned heads again earlier this month with reports that it's planning to open dozens of new grocery stores that would be distinct from its Whole Foods brand, according to The Wall Street Journal. While Whole Foods tends to cater to more affluent customers, these new stores would likely feature a wider selection of products at lower prices.

There are also rumors that Amazon could buy up small regional grocery chains as part of its expanding retail empire. The report said the first store could open later this year, with other locations slated for early 2020, and dozens more on the drawing board.

It gains more than just sales

If the grocery strategy sounds familiar, it should. Amazon is using the template it developed for its kiosks, the same one it used successfully to introduce and quickly expand its bookstores, automated Amazon Go convenience stores, and 4-star locations.

Each venture into physical retail gives Amazon the opportunity to interact with new and existing customers, as well as fulfill its voracious appetite for data. Any stats the company collects during the initial rollout of new store formats provide Amazon with additional data on consumer preferences, which it then uses to hone its approach, before quickly expanding the concept.

By taking a measured approach to its expansion into physical retail, Amazon is able to use data to refine its strategy and avoid large, and potentially costly, mistakes.

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

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