Not only is Amazon's (AMZN 3.20%) e-commerce business slowing, but it still hasn't figured out how to do physical retail yet. The online retailer announced it was shutting down a number of its Amazon Fresh grocery stores, along with some of its Amazon Go locations that feature its just-walk-out cashierless technology.
This comes almost a year after Amazon closed down its dozens of one-off retail concepts such as its bookstores, 4-Star stores, and Pop Up locations so it could focus more closely on its grocery chains. Now they're also getting the ax, proving that physical retail is still a difficult business to operate, even for a company with the experience and financial prowess of Amazon.
Image source: Getty Images.
Hardly making a mark
As much as Amazon has sought to make physical stores an important, growing part of its operations since it purchased Whole Foods Market in 2017, a chain that still represents most of Amazon's retail footprint, sales haven't really amounted to all that much over those six years.
In 2022, physical store revenue hit an all-time high of almost $19 billion, but that was just 3.6% of Amazon's $514 billion in total sales. It makes almost twice as much from its subscription services like Amazon Prime as it does from physical retail.
While most of those sales were from its 500 or so Whole Foods stores, which benefited from consumers returning to home-cooked meals, these offshoot ideas still came at a significant cost.
Amazon took a $720 million impairment charge related to its property, equipment, and operating leases in the fourth quarter. This helps explain why the e-commerce giant is once again paring down its physical retail portfolio, despite CEO Andy Jassy saying it's just a matter of juggling concepts to see what works best.
"We're continuously refining our store formats to find the ones that will resonate with customers, will build our grocery brand, and will allow us to scale meaningfully over time. As such, we periodically access our portfolio of stores and decided to exit certain stores with low growth potential," he told analysts on Amazon's earnings conference call.
That's a tough pill to swallow when e-commerce sales are also slowing.
Image source: Amazon.
No longer a one-of-a-kind leader
Because Amazon does have a significant cash hoard -- $70 billion at the end of last year -- it can afford to dabble in trying new things. Its just-walk-out technology that underpins the entire Amazon Go concept has been spreading to other stores, including third-party retailers, and came about as a result of its available substantial financial resources.
Yet as novel as not needing to stop at a register on your way out the door after picking up groceries, other companies are also entering the space, with their own technology offering similar convenience.
Standard AI has deployed its autonomous checkout at Circle K convenience stores; Zippin has connected numerous corporate locations, higher-ed campuses, and even stadiums with cashierless payments, while outfitting stores in Brazil with the technology; and numerous other retailers, including Walmart, have installed scan-and-go options at their stores.
Even third-party grocery delivery leader Instacart, for example, just announced it had its first customer fully deploy its own Scan & Pay technology.
All this means Amazon Go and its capabilities are no longer so unique.
Do one thing and do it well
Obviously, Amazon won't be abandoning physical retail and will continue to experiment with new ideas. It has two Amazon Style clothing stores, for example, that allow shoppers to request clothes from Amazon.com or other stores to be sent to a room where you can try them on by appointment.
But it's clear that physical retailers don't need to worry about Amazon encroaching on their territory (though the continual migration of consumers to e-commerce is a constant threat), and Walmart really doesn't need to feel threatened by the online retailer's grocery ambitions.
For as good as Amazon is at selling things online, it's just not good at brick-and-mortar selling. It needs to stay focused on getting e-commerce sales growing again and maybe just let Whole Foods Market be its one stab at physical retail.
