The pandemic has changed the way a lot of consumers shop. Though e-commerce was gaining traction for many years prior to the COVID-19 outbreak, digital sales have really exploded from mid-2020 onward as health concerns have kept shoppers away from physical stores.
But if there's one specific item it's tough to shop for online, it's clothing. Though some retailers have gotten savvier with their online technology, offering up features like digital fitting rooms on their websites, at the end of the day, apparel is the one item that may drive consumers to head to the store rather than spin their wheels experimenting with different styles and sizes.
It's this very challenge that Amazon (AMZN +1.10%) is trying to capitalize on. The online giant has announced plans to open its first physical clothing store. And this has the potential to really shake things up in the retail space.
Image source: Getty Images.
A smart move for Amazon
Amazon Style, Amazon's first clothing store, is set to open this year outside of Los Angeles. The store is expected to take up 30,000 square feet of space (because why would Amazon not go big?) and will compete with a number of shopping center and mall mainstays, like Nordstrom and H&M.
Amazon Style will feature a wide range of products, from $10 staples to $400 designer pieces. That could, in turn, attract a wide range of customers. It will also utilize technology that enables customers to select items from a screen and have them sent to a fitting room or checkout counter.
Of course, this isn't Amazon's first foray into physical retail. In addition to acquiring Whole Foods, the company has already upended the grocery market with its Amazon Fresh stores. It even opened a hair salon in 2021.
But now, Amazon is banking on the fact that customers are tired of buying clothing online and would rather revert to the classic model of trying on items in person to ensure a proper fit than take their chances with different sizes online, potentially having to deal with a host of returns. And that alone could make opening a retail store a good bet.
A good or bad thing for malls?
Malls have been losing tenants since before the pandemic, but 2020 brought a host of retail bankruptcy filings that led to an even more substantial uptick in closures. At this point, malls needs their remaining tenants to stick around and commit to leases. But if Amazon's latest venture takes too much business away from struggling retailers, it could lead to more store closures -- and mall REITs, or real estate investment trusts, could lose serious value.
On the other hand, if Amazon's model proves successful, the online giant might seek to expand its physical retail footprint. And that could mean taking up residence in malls, thereby replacing some of the tenants that have been lost.
All told, real estate investors shouldn't worry about Amazon's new venture, as it could end up being a good thing for malls. In fact, the presence of Amazon Style might actually draw more tenants into malls, the same way anchor tenants like department stores have a similar draw. And seeing as how some department store brands are increasingly opening off-mall locations, Amazon Style could, in an unexpected way, end up being malls' savior.
