Amazon.com (AMZN 3.89%) has been a tough competitor for many brick-and-mortar retailers, playing a key role in putting a range of physical retailers out of business. But what might happen to direct competitors if the e-commerce giant decides to launch a massive rollout of physical stores? Would companies like Barnes & Noble (BKS +0.00%) struggle to stay alive? We may soon find out, according to a Wall Street Journal report published Tuesday.
Amazon's book store in University Village, Seattle. Image source: Amazon.com.
Amazon's brick-and-mortar strategy
"After dipping its toes into brick-and-mortar retailing last year with its first physical bookstore, online giant Amazon.com Inc. is poised to dive into the deep end," wrote WSJ's Greg Bensinger on Tuesday. Bensiger cited a comment from General Growth Properties (GGP +0.00%) CEO Sandeep Mathrani, who referenced Amazon's plans during the company's earnings call on Tuesday.
Amazon reportedly plans to rollout 300 to 400 brick-and-mortar book stores, Mathrani said.
As the CEO of the $25 billion real estate investment trust, which owns, manages, leases, and redevelops high-quality regional malls, the Journal speculates Mathrani's source may be Amazon real-estate executives. Mathrani mentioned Amazon's plans when he was detailing a broader trend of mostly online-based companies choosing to open physical stores. The CEO listed eyeglass seller Warby Parker and beauty subscription service Birchbox as examples of companies with strategies to open physical stores.
Amazon has been experimenting with brick-and-mortar retail, launching a blended physical and online bookstore model experience in partnership with leading Italian bookstore chain Giunti in 2014, some kiosks in shopping malls and several locations on college campus, and its first U.S.-based store in Seattle in November.
If Mathrani's report is correct, Amazon's vision for its brick-and-mortar stores is far more expansive than these initial experiments.
Amazon's bookstore in Seattle, which may offer a preview of what these stores could look like if they do roll out, carries thousands of books, which are selected based on Amazon.com customer ratings, pre-orders, sales, and popularity on Goodreads, Amazon says. The Seattle store also chooses some inventory based on curators' assessments.
"To give you more information as you browse, our books are face-out, and under each one is a review card with the Amazon.com customer rating and a review," the company explains on its home page for its Amazon Books Seattle location. "You can read the opinions and assessments of Amazon.com's book-loving customers to help you find great books."
Amazon highlights online reviews of books in its Seattle store. Image source: Amazon.com.
The prices at Amazon's Seattle location are the same as the prices online, reducing any customer friction when deciding whether to purchase the book from the store or online.
An obvious threat to Barnes & Noble
It would be difficult to overstate the threat such a significant brick-and-mortar strategy would have on Barnes & Noble, as well as other physical book stores.
Putting Amazon's possible 300 to 400 locations into context, Barnes & Noble, which is the nation's largest retail bookseller, operates 647 locations.
Barnes & Noble's Nook segment, which represented an attempt by the retailer to compete with Amazon's Kindle readers and the Kindle online bookstore, has failed to gain any meaningful traction. The company's Nook revenue in its most recently reported quarter was down about 32%, year over year, driven primarily by lower content sales.
Barnes & Noble shares are down 10% at the time of this writing as investors digest the implications of this speculation.
Of course, this speculation about Amazon's brick-and-mortar ambitions prompts another broader question about the company's plans: Where do Amazon's ambitions end?
