The End of an Era?: Amazon’s physical stores set to permanently close

April 20, 2022

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3 min read

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What's going on here?

Amazon plans to close all product stores in an effort to focus more on grocery stores.

What does this mean?

In its primitive days, Amazon operated as an online bookseller. The multinational technology company has established an unmatched presence in the online world and credits its growing success to its ability to venture into multiple markets. These include healthcare, grocery, and drone delivery.

Although it’s been slow to do so, Amazon has also sought to improve its physical footprint. The company only launched its first physical bookstore in 2015, which was two decades after it began its operations. The world was set to see Amazon investing in more 4-star stores and pop-up locations. An Amazon 4-star store is essentially a shop that maintains the quality of what Amazon has to offer online, in store, by only selling products that have a 4-star or higher rating on its website. Richard Lim, CEO of Retail Economics at Amazon, highlighted in October 2021 that the move was because “one of Amazon’s key motivations and ambitions is to try to gain a much better understanding of how the physical and digital worlds interact”. However, only five months after this statement, Amazon is now set to permanently close all of its product retail stores at 68 locations across the UK and the US.

What's the big picture effect?

Neil Saunders, managing director of Global Data Retail commented that this move comes as a surprise. Amazon opened 4-star stores in Bluewater and London’s Westfield only a month apart. The stores seemingly were running smoothly as it generated 4-star ratings on the sale of its products. However, relatively speaking, Amazon’s physical stores have been underperforming, generating a mere 3% of the company’s $137 billion earnings in the first quarter of this year.

What does this say about brick-and-mortar retail? It may be an indication that consumer patterns are changing, and that Covid-19 has bolstered the online shopping trend. However true that might be, Daniel Taub, national director of retail at Marcus & Millichap, highlighted that “at the heart of it, Amazon is not a retailer, they are a data driven company that happens to be in the retail sector in various delivery channels”. The strategic plan by Amazon to close its stores is in keeping with the name it has created for itself, which is known for hyper convenience. Amazon’s product stores simply fall short with factors such as stock limitations. The purpose of the physical product store venture was to increase the number of sign-ups for Amazon prime – and it has done just that. Therefore, the store no longer serves a strategic purpose, especially as it fails to prove its worth through earnings.

Granted, the decision to abandon its investment in absolute terms is uncommon. As Saunders comments, “it tries and tests new things, often committing reasonable levels of investment, only to move on if it doesn’t see forward potential”. Therefore, Amazon’s behaviour should not speak for the trajectory of brick-and mortar retail but rather, it should be seen as a strategic decision to focus on more profitable endeavours in the grocery market. Amazon has announced that we are set to see over 260 Amazon grocery stores launched before the end of 2024. Amazon has evidently recognised that it is a better business decision to make a long-term investment in its checkout-free grocery stores.

However, how do these decisions reflect on jobs in the retail market? Amazon has chosen not to reveal the number of employees affected by the closures. Nevertheless, it did highlight that those employees who wanted to stay at Amazon would be kept on by being offered jobs in other areas of the company. Despite this, we are entering an era of disruption, an era of automation and an era of e-commerce. How do you think we will cope?

Report written by Kerianne Pinney

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