Amazon.com (NASDAQ:AMZN) is launching a new supermarket chain next year that's completely separate from Whole Foods Market. But investors might want to ask why Amazon thinks a new store is needed when it has yet to figure out how to correctly run physical retail with what it has now.

Since acquiring the organic grocer in 2017, Amazon has collected a portfolio of brick-and-mortar retail operations the way a 12-year-old collects baseball cards. It has some of each targeting a few different concepts, but has failed to put together a cohesive plan for how they will all fit together. 

Because Amazon still hasn't figured this all out, a new grocery store chain likely won't perform any better.

Family shopping in produce aisle

Image source: Getty Images.

A wake-up call

The supermarket landscape was thrown into upheaval when Amazon bought Whole Foods because of the potential for blending the online and offline grocery worlds under one super-efficient, highly optimized banner. It hasn't worked out like that at all.

No doubt Amazon spurred numerous supermarkets to improve their own omnichannel efforts. Walmart (NYSE:WMT), which was already transforming its digital operations into a unified whole with its physical footprint, seemed to accelerate its learning so that its e-commerce sales are growing faster than even Amazon's.

Online sales, including groceries, grew 37% last quarter at Walmart, versus 22% at Amazon. And where Walmart continues to post higher sales at its physical stores, Amazon's revenue actually declined. 

More worrisome might be the fact that even though Amazon has more physical locations than it did when it bought Whole Foods, total revenue from those stores is actually lower today than it was two years ago.

Getting less from more

When Amazon reported its fourth-quarter 2017 physical-store sales, representing the first full quarter that Whole Foods was under its control, it said the 440 stores generated $4.52 billion. Last year's fourth quarter saw physical-store sales drop to $4.40 billion even though its store count had expanded to over 500 with all of the concepts it launched.

Amazon said the decline was merely because it had shifted Whole Foods' fiscal calendar to align with its own. But now we're almost a year on, and physical-store retail sales are still falling -- down 1% in the third quarter to $4.19 billion. Even though Amazon has 505 Whole Foods stores, 19 Amazon Books, 17 Amazon Go convenience stores, six Amazon 4-star locations, and four Presented by Amazon outlets -- more than 550 brick-and-mortar stores altogether -- sales are 7% lower than when it first entered the physical retail space with over 100 fewer stores.

Chart of Amazon physical retail store sales

Data source: Amazon.com Securities and Exchange Commission filings. 

Now Amazon wants to add another grocery store chain and has reportedly signed leases for at least a handful of locations in several major cities.

Rivals have nothing to fear

There's been nothing to suggest Amazon really has figured out how to do real-world retail right, and it's increasingly looking like the effort has proved much more difficult than the e-commerce leader originally thought.

Certainly much of the decline is tied to Whole Foods, which had been stumbling even before Amazon bought it. That hasn't changed under Amazon's tutelage, and there's no reason to believe yet another supermarket chain will fare any better.