Amazon (AMZN 0.31%) was never able to get brick-and-mortar retail right, and now it's closing down all 68 bookstores, 4-Star stores, and Pop Up locations, while focusing on its agglomeration of grocery store concepts.
Although the physical stores never really amounted to much in terms of revenue -- about 3% of last quarter's $137 billion -- the decision proves just how hard retail is, and how it's only gotten worse since the pandemic. Supply chain woes and a protracted labor shortage mean brick-and-mortar retailers have a whole new set of challenges to overcome, ones not even Amazon's vaunted empire can resolve.
That raises the obvious question of whether retailers should worry if they will be able to survive if Amazon can't even make it in the physical world.
A multipronged attack
Amazon's push into physical retail began with its 2017 acquisition of Whole Foods Market, which still represents the vast bulk of stores the e-commerce giant operates. There are over 500 of these supermarkets in operation, but since then it has built out additional supermarket ideas.
There is its Amazon Go convenience store concept that features its "just walk out" technology, which allows consumers to avoid the checkout line; and Amazon Fresh, its branded supermarket chain that also touts cashier-less convenience (the first Whole Foods store with the technology also recently opened).
Revenue at physical stores was $17.1 billion in 2021, up 5% from the pandemic-ravaged prior year despite having 679 brick-and-mortar stores operating, 10% more than the year before. Sales were below the $17.2 billion level of 2019.
Obviously the COVID-19 pandemic hurt the business by shutting down non-essential retailers, but it was clear even before then only Amazon's grocery stores were a growth market. The eclectic mix of its other concepts was always a bit quirky.
Amazon 4-Star sells goods that are rated four stars or more on its website; Amazon Pop Ups are constantly changing themed stores based in malls that sell a mix of whatever is hot on Amazon; and Amazon Books was a traditional bookseller, an odd endeavor considering Amazon's online bookseller roots and it being the primary cause for the demise of Borders and the crippling of Barnes & Noble.
It probably means Amazon's ambitions to open department stores and discount electronics and home goods locations are also dead, but it will apparently keep its new Amazon Apparel store operational.
Should retailers worry?
On one level, no. Not every Amazon venture is a success, even with the vast financial resources available to it (Amazon Fire phone, anyone?). And these stores being closed were mostly one-off ideas that don't necessarily translate to the broader retail world.
Yet it's notable that even with its vast logistics network and data mining capabilities to tune into what consumers want, Amazon couldn't replicate its e-commerce success in the physical world. Especially as rampant inflation will undoubtedly suppress discretionary consumer spending, retailers may want to look over their shoulders to see what's coming next.
Total retail sales hit $4.58 trillion last year and e-commerce has grown to represent 23% of that amount. Amazon accounts for 45% of all online sales, and new CEO Andy Jassy may believe the e-commerce giant should stay in its lane.
Amazon's failure to make a lasting mark on physical retail isn't a sure sign of the industry's ultimate demise, but the road ahead for retailers is becoming even harder to navigate.