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November 11, 2015

The Retailer That Killed Bookstores Is Opening...A Bookstore

Posted by Amitabh Mudaliar (View Profile | View All Posts) at 10:29 AM

Amazon Opens Bookstore in Seattle [Source: https://www.youtube.com/watch?v=LSy2XVGs5Ds]

There are plenty of examples of the relatively new phenomenon of omnichannel retailing, but none is quite so striking as that of Amazon. Omnichannel retailing aims to appeal to all of a customer's senses and to empower her to buy whatever she wants at her convenience. On the surface, the fact that Amazon, a global online retailer, is opening a 'brick-and-mortar' bookstore in a single location, seems to be a validation of the omnichannel trend.

But then there is the fact that Amazon is indeed a global retailing behemoth and it is opening (for now, at least) just one store in a Seattle neighborhood. The move, given that it's right before the holiday shopping season, could be a one-off. It doesn't spell actual commitment to dealing with the many challenges that come with operating physical outlets (hiring and training sales associates, leasing real estate, etc.) on Amazon's part.

But, the question floating around ever since the web-based company announced its new physical book store is: Why? After all, most retail analysts point to Amazon as the model example of a market disruptor. When it came on the scene some 20 years ago, it allowed consumers the ability to shop for any book in existence and, because of its global scale, it could undercut traditional booksellers when it came to price.

Amazon's stock typically trades at sky-high multiples, suggesting that even though it has had a difficult time turning a profit, shareholders love the stock because they place a premium on the innovativeness of its sales model and the smarts of its founder and CEO, Jeff Bezos. It also doesn't hurt that according to the research firm IBISWorld, Amazon sold 41 percent of all new books and 67 percent of all 'e-books' in 2014. The stock market, therefore, also appears to be patient with Amazon; it knows a good thing when it sees it.

The fact that Amazon has essentially reverse-engineered its omnichannel approach, going from online sales on every digital device imaginable to opening a store in a high-rent section of its hometown of Seattle is what has everyone speculating. Could it be, as retailing's Black Friday and Cyber Monday approach, that Amazon has orchestrated a brilliant piece of brand marketing and promotion? There is no financial reason to open a physical bookstore, especially because it's just one store. Given the economies of scale in book retailing, Amazon would presumably have to open several hundred stores to make them profitable.

Market evidence is also against opening a single, physical store. According to IBISWorld, the bookstore business has slumped to US$ 13.2 billion in revenues this year from US$ 18.7 billion in 2010. The research firm estimates that industry revenues will continue to slide by 1.4 percent a year over the next five years to $12.3 billion. Indeed, opening a single bookstore appears to be about a lot of things -- but none of them involving book sales! According to a company press release, the new store will allow customers to "test drive Amazon devices." The document states: "Products across our Kindle, Echo, Fire TV, and Fire Tablet series are available for you to explore, and Amazon device experts will be on hand to answer questions and to show the products in action."

Anyone who has ever visited an Apple retail store knows that the place is much more than selling computers. It's about creating an amazing customer experience. Notice I refer to the customer experience, or CX as it's known in the software industry. This term has evolved from the familiar customer relationship management (or CRM) that used to be the aim of retailers. CX means more; it's an omnichannel commitment to consumers.

It's not uncommon for visitors to stores like the Apple outlets not to buy anything; they still come away with a great attachment to the brand. If the Amazon store succeeds in creating buzz around its Kindle, Echo, Fire TV, and Fire Tablet offerings, the costs involved in creating a physical store will have been worth it. Jeff Bezos is a master marketer, creating brand awareness with his announcement that he might develop a fleet of unmanned drones that could deliver items directly to customers' doorsteps. His idea remains a distant dream -- but we're all still talking about it.

Also, as the holiday season gets longer every year (there have been Christmas-related television advertisements in the North American market for weeks now) the appeal of Amazon is that busy consumers can wait until the last minute to do their shopping (thanks to the services provided by them). I think Amazon has tapped into the growing annoyance of consumers that the holiday shopping season has become too long and stretched out.

To be sure, this wouldn't be the first time Amazon has experimented with physical retail stores. It has opened temporary 'pop-up' stores for the holiday rush in years past, but those tended to be more like extensions of their regional warehouses. This year, Amazon is promising British shoppers same-day delivery around greater London if the customer subscribes to its £79 annual membership. Surely the Seattle store is another form of omnichannel connection that Amazon is building with consumers in order to sell more fee-based services and devices. Let the holiday rush begin!

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