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Amazon Goes Rogue

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In a big departure from its online monopoly of sales, Amazon is setting up shop in Manhattan on 34th Street, across from the Empire State Building, just in time for the holidays. The 12-story building was once home to Orbach’s Department store and now has Mango and Express stores at street level. That, and the two loading docks at the back of the building give Amazon some serious clout.

Maybe it’s pure ego for Amazon CEO Jeff Bezos, but opening in the largest city in the country makes a huge statement. But, as the Wall Street Journal pointed out, being so close to the Empire State Building, which last year attracted 4.3 million visitors, and in proximity to Macy’s flagship store, which reels in over 20 million visitors each year, Amazon will benefit from the enormous amount of foot traffic that area generates.

Although Amazon operates lockers, where customers can pick up deliveries and pop-up stores, this is their first venture onto “Main Street.”

And why not? While online retail accounts for only 6.5% of the $4.73 trillion in total retail sales in the U.S. this year (and is rising), most shopping happens in the store.

Here’s the breakdown for sales in bricks-and-mortar stores by category: Food and Alcohol - 99%; Drug, Health and Beauty – 97%; Clothing – 89%; Computers, Electronics, Appliances – 75%; Furniture – 93%; Toys and Sporting Goods – 88%; Books, Magazine, Music, Videos – 81%. (Statistics compiled by Kantar Retail based on Commerce Department estimates.)

People still prefer to shop in a physical store. Maybe that’s why Bonobos, Warby Parker and e-commerce brands have opened up brick-and-mortar establishments to supplement their online offerings. Bonobos claims its in-store shoppers spend almost twice as much as their online counterparts.

In the midst of Apple’s challenges, they opened their first store in 2001. The critics didn’t give them much of a chance. Business Week’s Cliff Edwards suggested that in order for Apple to break even on its leases, they would have to sell $12 million worth of computers a year. Today, Apple operates the most profitable retail locations in the world, topping $39 million per store.

Microsoft now has more than 100 stores. EBay is partnering with brick-and-mortar retailers, partly to answer the challenge posed by Amazon.

With Amazon’s foray into the electronics market with its Fire phone, which hasn’t exactly “caught on fire,” and its expanding hardware operations, the best place for these kinds of sales is the physical store. Amazon probably wants to push its Kindle sales too, since the competition is knocking on their door. Consumers need to see and have physical interaction with electronics devices before making the decision to buy.

Speculation swirls as to what Amazon would include in its product mix. It’s obvious they would carry their own products and books from their publishing division, since competitors like Barnes and Nobles won’t sell them. But, Amazon has more tricks up its sleeve, since they can data-mine from their own website to determine what sells, and stock their shelves accordingly.

The store could also offer a place for people to pick up items they ordered on the website, as well as serve as a multi-fulfillment center for same-day deliveries, which Amazon has been pursuing.

Opening a physical location is “about marketing the Amazon brand,” said Matt Nemer, a Wells Fargo analyst. “Same-day delivery, ordering online and picking up in store are ideas that are really catching on. Amazon needs to be at the center of that.”

This could be a real turning point in retail, as more e-commerce enterprises turn to brick-and-mortar locations to augment sales.

TAGS: retail, retail trends, omni-channel, retailers,
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