Stores will be a foundation of consumer retail until a majority of things can materialize in our homes through some wonder of physics. It has seemed obvious for a few years that Amazon would make a leap into the physical at some point (I know there are denials but I do not believe them). Here are 5 reasons why I believe this is a sensible approach.
- Fulfillment: Amazon fulfillment costs are skyrocketing year over year (37% in 4Q15) and as a result the low-cost ecommerce advantage over physical is fading.
- Amazon Prime: Prime is a genus loyalty program that will certainly translate into the physical space. Gartner consumer research indicates that about 1/2 of consumers in the US are members of Prime, and the number goes higher in the 25-34 year old demographic.
- Multichannel retailers: Consumers still prefer to shop in store. Omnichannel is failing to deliver consistent cross channel experiences for customers due to poor execution. Gartner research shows that 50% of consumers chose to shop online instead of in store due to price or product availability. This certainly implies that if all things were equal physical retail stores could win more often than they do today.
- Broad array of categories: There are many categories to choose from. It may start with books and music, but Gartner research shows US Amazon Prime members are purchasing from multiple categories:
Category % US Prime Members Books, music, or video 63% Clothing or footwear 43% Other types of goods 41% Consumer electronics 41% Office supplies 28% Sporting goods 25% Home improvement or hardware 25% Drugs/Pharmaceuticals 19% Groceries 17% Furniture 16%
- Digitalization of retail: Consumers are finished with strictly digital or physical experiences. Shopping and transacting are blending into a seamless experience that will require retailers to adapt and enable consumers to shop and purchase on their own terms. Amazon may perceive a ceiling in future growth unless it embraces this model.
This will not be an easy transition for Amazon; physical retailing is different and even its vast customer knowledge won’t insulate it from growing pains. However, the financial markets always give it room so all you mutlichannel retailers out there have to improve execution now.
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