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Why an Amazon.com Bookstore Doesn't Make Sense

By Jeremy Bowman - Oct 20, 2015 at 10:42AM

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A physical space that allows the company to do what it already does better would be smart, but selling products is not something it needs four walls to do.

For years, Amazon.com (AMZN -2.78%) has inched closer to establishing a real presence in the physical world.

Since last summer, the e-commerce giant has opened two pop-up lofts, one in San Francisco and the other in New York, to promote its cloud computing division, Amazon Web Services. Earlier this year, it took the wraps off a pick-up and drop-off center at Purdue University, with plans to replicate the model at other colleges and universities, and at times during the holiday season, the company has experimented with pop-up kiosks in malls to promote its Kindle line of products.

Now, Amazon appears set to make an all-out plunge in the world of bricks and mortar. According to the industry newsletter Shelf Awareness, Amazon may have a physical bookstore in the works in Seattle, its hometown. In a strip mall that once housed a Barnes & Noble, an entity calling itself "Ann Bookstore" has filed for a permit with the city planning department, and Amazon has reportedly contacted staff at independent booksellers about potential hiring them. According to designs, the 7,388-square-foot space seems to have a section for book browsing and another for testing electronic devices.

Amazon's pick-up center at Purdue University. Image source: Amazon.com.

Amazon has not yet confirmed its involvement with the space, but if the scuttlebutt is true, the move would constitute a stark departure from its 20-year history as an exclusive online seller. The rumors have elicited some excitement among the media and would likely be well-received by some Amazon fans, but there are a number of reasons that such a tactic is likely to underwhelm.

A physical bookstore flies against Amazon's entire business model
When Amazon opened for business, founder and CEO Jeff Bezos chose to focus on books because a physical bookseller could not match the breadth of a virtual one. The strategy proved canny, and Amazon expanded into other media categories like CDs and DVDs when they were popular, under the same philosophy, before adding the vast array of products it carries today. That promise to customers -- that Amazon sells anything you could want -- would be impossible to fulfill at a physical store. 

Analysts have pointed out that an Amazon bookstore could serve as a promotional vehicle for books put out by Amazon Publishing, which are blocked by rival retailers like Barnes & Noble, but advertising and promoting those on its website or offering them through the Kindle Lending Library as it currently does would seem to be just as effective, if not more so, than having a physical store for them.

Amazon has no advantage in physical retail
The brilliance of Amazon has been to establish complementary competitive advantages that combine to form a wide economic moat. After developing a reputation for low prices and customer service, the company has carved out similar positions in emerging industries like e-books, cloud computing, and streaming video, and it's used its Prime loyalty program to tie them all together, locking customers into Amazon's ecosystem.

Physical stores, however, are not an emerging industry and do not fit in with this strategy. At a time when Amazon is doubling down on speedy delivery with programs like Prime Now and drone delivery, selling products at bricks-and-mortar locations only undermines those investments.

A better use of space
Amazon's current forays into the physical world demonstrate a more judicious use of real estate. To promote its cloud computing services, the company is steadily opening pop-up lofts where developers can test out products and meet with AWS staff. The pop-up kiosks in malls allow customers to test products like the Fire or the Echo before buying, and a pick-up/drop-off center is great for customers who may have trouble receiving their packages or need to make returns. 

A physical space that allows the company to do what it already does better would be smart, but selling products is not something it needs four walls to do.

It's worth noting that around this time last year, the media reported that Amazon had planned to open a store in New York across from the Empire State Building in time for the holiday season. However, those rumors turned about to be false -- Amazon was merely leasing space in the building for corporate offices.  

The plans for the Seattle store seem to be more concrete, but we shouldn't assume it's a bookstore. As Amazon has taught us on more than a few occasions in the past, expect the unexpected. 

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