Look out Walmart. Amazon (AMZN 1.31%) is eyeing your turf.
Last month, The Wall Street Journal reported the e-commerce behemoth was planning a 225,000 square-foot superstore outside of Chicago -- about the same size as a Walmart supercenter -- where it will offer groceries, consumer goods, and general merchandise. Presumably, once this one is up and running well, more will follow.
But what might this mean for investors?
Image source: Getty Images.
If at first you don't succeed...
It's not Amazon's first foray into the brick-and-mortar retailing arena, which so far has seen more failure than success. Last month, for instance, the company announced it would be shuttering all 72 of its Amazon Go and Amazon Fresh grocery stores to focus on expanding the Whole Foods Market grocery business it acquired back in 2017. In 2022, Amazon closed all 68 of its bookstores and pop-up electronics shops (although it's arguable the COVID-19 pandemic played at least some role in this decision).
There's certainly no assurance this new experiment will move beyond a single-store test, either, particularly when the space is already crowded with names like Target, Costco, and of course, Walmart's 5,212-store presence in the U.S.
Of all the physical retailing efforts Amazon has tried, however, an all-encompassing megastore located in the suburbs of a major city seems like the one with the best chance of working in the long run.
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Key Data Points
This one just might stick
Again, the company's brick-and-mortar track record is admittedly less than great. It's not Amazon's inability to execute on a plan, however, that's the problem. It's the plans themselves. Bookstores were already on the ropes before Amazon got into the business back in 2015. And as for small-scale grocers in urban centers, while clever, many consumers just don't shop like that anymore. In the meantime, although some malls are doing well enough, this crowd isn't necessarily there for more than clothing, or increasingly, food.
But suburban megastores that sell everything? Walmart's already proven the formula works. Now Amazon just needs to take the idea and make it better.
And the online-shopping giant has plenty of opportunity to do exactly that. See, not only does it already have relationships with its own suppliers (nearly 40% of the company's e-commerce revenue come from sales of its own merchandise), but Amazon also has access to millions of third-party sellers that would love to get their products onto actual store shelves. It's conceivable that its stores could offer merchandise that isn't available anywhere else.
Perhaps the biggest advantage that Amazon has that could make its brick-and-mortar presence a smashing success, however, is its logistics and customer ecosystem.
Think about it. Amazon has trucks running all over the country all the time, making next-day delivery of millions of goods possible almost everywhere within the continental U.S. Speedy deliveries of goods to (and from) a physical store wouldn't strain this network.
Meanwhile, Consumer Intelligence Research Partners estimates there are now 200 million Amazon Prime subscribers in the United States alone. If the company can give them a reason to step foot into one of its stores, they're likely to make a purchase while there. Conversely, a local store that offers perks to Prime members may prompt a consumer to become a Prime member, and then make online purchases that qualify for free shipping.
The point is, this may well be Amazon's best shot yet at winning a piece of the 84% of domestic retail spending that the U.S. Census Bureau says is still happening offline. That's roughly $6 trillion.
