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Amazon Is Opening Up Department Stores – After It Caused Their Fall

Amazon Helped Crush Department Stores, And Now It Wants To Be One

Amazon is planning to do something that it initially worked to crush. It was leading the charge against companies like Sears and J.C. Penney. Now the mighty Amazon is doing something that it never had, replicating the store it once helped draw.

Amazon intends to open a departmental store, taking up a total space of 30,000 Sq Ft, which is one-third of the conventional departmental stores. These stores will showcase amazon’s growing range of clothing, household items, electronics, and other merchandise.

Amazon (AMZN) declined to comment on its plans. “We do not comment on rumours and speculation,” a spokesperson for the company said in an email.

Amazon would also use these stores as de-facto warehouses where customers can return stuff they had purchased off its website. Finally, there may be a real estate benefit for the e-commerce giants as the vacant storefronts are scattered across cities and inside malls, and Amazon can cash in.

It is worth mentioning that Amazon has almost zero experience in running stores and instances where they have tried to work it out; frankly speaking, it has not worked out. What is pertinent to mention here is that retail store sales have steadily plunged from 184 billion USD in 2010 to 135 billion USD in 2019 and then took a stark dip to $114 billion, according to the Census Bureau in 2020.

The downfall of the traditional departmental stores is one key factor that Amazon is planning to venture into this field.

“They have long been planning to explore that opportunity, created by the vacuum of a lot of department stores closing,” said Venkatesh Shankar, professor at Texas A&M University’s Center for Retailing Studies. “They’re getting in at good prices and lease rates.”

Although we have seen an impressive spike in online shopping over the last few years, there is still no comparison with retail marketing that still has 84% of the total market share.  

“Online is a convenient, efficient channel for repeat purchases, reordering bath tissues, diapers, batteries,” said Shankar. “If you really want to build brands, the brick-and-mortar presence is critical.”

“I believe that Amazon, in their endless intent to continue to grow, intends upon expanding their market share through customers who can’t or don’t want to shop via e-commerce,” said Mark Cohen, director of retail studies at Columbia Business School and the former chief executive of Sears Canada.

Amazon Essentials, Goodthreads, Core 10 clothing, and Rivet and Stone & Beam furniture are Amazon’s products through its stores.

“Stores will help Amazon do a much better job of showcasing its offer, especially in own brand,” Neil Saunders, managing director at GlobalData Retail, said in an email to clients.

The additional function these stores would carry out will be that these would act as shipping and pick up hubs for swift delivery and online experience.

“These locations will function as last-mile distribution hubs in highly populated urban areas, where distribution centres are not located,” said Matthew Katz, managing partner at SSA & Co., an advisory firm, in an email. This is an “advantage for same day, even same-hour delivery.”

611 physical stores were under the banner of amazon were already working in North America since December 31, 2020, as per its latest annual filing.

Kodali quoted that “department stores are a dying format”, and it would be a mistake for Amazon to open a similar concept. The previous stores Amazon has opened have been “entirely unremarkable. It doesn’t lend any confidence in a thesis that Amazon’s next store is going to be a game-changer.”