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Amazon sets up shop in the mall

In an ironic twist, the online retail giant goes brick-and-mortar

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After decimating traditional malls, Amazon is coming full circle and looking at opening new physical locations "akin to department stores," said Sebastian Herrera at The Wall Street Journal. The e-commerce pioneer has been scouting locations in Ohio and California to launch large stores that will feature Amazon's private-label goods prominently. "The new retail spaces will be around 30,000 square feet, smaller than most department stores" but roughly the size of a typical Best Buy. The irony here isn't lost on anyone. Department stores have faded in part because of Amazon's success "taking market share from big-box operators." However, Amazon has slowly been making its physical-retail ambitions clear. It now has more than 20 physical bookstores and two dozen Amazon 4-star stores, selling "gadgets from electronics to kitchen products."

We've seen this playbook before, said Stephen Mihm at Bloomberg. Sears initially started as a mail-order business built on convenience that "offered a breadth of items that exceeded Amazon's seemingly endless inventories." You could actually purchase a house from Sears, and its components would arrive in a railroad boxcar to be "assembled on site by the buyer." Then catalog sales began to plateau, and Sears "launched an ambitious plan to colonize retail as well." Amazon "clearly intends to pull the same trick." Amazon has already seen how a physical-retail presence can improve sales, said Dan Gallagher at The Wall Street Journal. In 2010 and 2011, it struck deals with Target and Walmart to carry its Kindle e-readers, which lasted until the retailers pulled the plug "out of unhappiness with serving as a showroom for a powerful online rival." Amazon has since been heavily "growing out its own roster of private labels and exclusive third-party products," and, as with the Kindle years ago, wants them to be visible offline, too.

Amazon is naturally worried about slowing online sales, said Tae Kim at Bloomberg. "Investors are feeling anxious" after the company projected this quarter's revenue growth will be "markedly lower than its prior quarters" as the pandemic-driven online sales boom fades. Adding retail locations make sense for "items that could benefit from more touch and feel," like clothes and furniture, but "Amazon's track record in this area has been poor." It has not disrupted the grocery business as predicted with its purchase of Whole Foods in 2017, and its experiments with bookstores and markets have not taken off.

Amazon can keep improving shipping, but ultimately it can't beat free instant pickup, said Amanda Mull at The Atlantic. "No matter how much you streamline product search or payments processing," there may be no "infinitely scalable, profitable fix" to the last-mile problem of getting everything to everybody's doorstep from a centralized facility. Taking returns on online purchases is also "so cost-inefficient that some retailers have just started refunding your money without taking the product." What solves these problems is stores, a notion that "was obvious for more than a century." Amazon helped kill many of them. But "physical stores may ultimately win out," because leaving with the thing you wanted immediately is "considerably faster than two-day delivery."

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

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