Amazon Rips Page From Rivals’ Offline Playbook
Possible bookstore openings mirror retail showrooms unveiled by other Internet sellers
Amazon is following a recent trend of online retailers opening showrooms and small shops to extend their brands. Above, customers paying for purchases at the online retailer’s bookstore in Seattle, Wash. PHOTO: DAVID RYDER/BLOOMBERG NEWS
The revelation this week that Amazon.com Inc. may open bookstores across the U.S. would seem to defy a 20-year-old online blueprint to pummel brick-and-mortar retailers with cutthroat prices and a seemingly limitless product selection.
But Amazon’s apparent plan to build a physical presence in shopping malls and urban centers is following the playbook of smaller Internet retailers that are finding early success reaching shoppers via storefronts and kiosks.
Web retailers including eyeglasses seller Warby Parker, jewelry outlet Blue Nile Inc. and clothing boutique Bonobos Inc. are addressing one of the biggest disadvantages of online shopping with showroom stores that enable customers to touch, feel and try on goods before they buy them online. Their small outlets also act as brand boosters, helping offset the prohibitively expensive costs of acquiring customers online.
“We’ve been blown away by the economics of our stores,” said Dave Gilboa, co-chief executive of Warby Parker, which has opened about two dozen U.S. locations since 2013.
At Warby Parker’s stores, customers can try on a large selection of glasses, but unlike, say Luxottica Group’s LensCrafters stores, all purchases are ordered through the company’s website. The stores, Mr. Gilboa said, are profitable and average just under $3,000 a square foot in sales, which is nearly double that of upscale handbag maker Coach Inc.
While retailers covet Apple Inc.’s success, physical retail is an unforgiving business. Gateway Inc., an early mail-order personal computer maker, once operated nearly 200 stores before it retrenched, closing all in 2004. And Alphabet Inc.’s Google has long contemplated a retail rollout, but has settled mostly on areas within other retailers’ stores to display its hardware devices.
Amazon, which opened its first bookstore in November in its Seattle hometown, has been tight-lipped about expansion plans. But the chief executive of shopping mall operator General Growth Properties Inc. earlier this week said Amazon is eyeing between 300 and 400 bookstores. GGP later said CEO Sandeep Mathrani wasn’t speaking on behalf of Amazon.
Amazon is expected to open at least two more stores and plans to eventually expand to as many as 200 locations, according to a person familiar with the company’s plans. Barnes & Noble Inc. has 640 stores by comparison.
‘There is legitimacy that comes with having a retail presence.’
Books are only part of the equation, this person said. Amazon wants to use the stores to showcase its electronic offerings and build brand awareness. The Seattle location stocks about 5,000 titles—compared with up to 160,000 at Barnes & Noble locations—and sells devices including Amazon’s Fire tablets and Kindle e-readers.
Amazon declined to comment.
Because Amazon buys books from publishers in bulk, it can offer the same prices as online. And it hopes to limit inventory by analyzing regional shopping patterns to identify the most likely books to sell.
Retailers say Amazon hopes to hook shoppers who may not normally visit its website and leverage its marketing costs over a wider audience.
“There is legitimacy that comes with having a retail presence,” said Jim Prewitt, the vice president of retail strategy for JDA Software Group Inc., which sells supply chain and other software to retailers. “When you have 30 or 40 stores, you may bring in a whole different group of customers, who may not have gone to your website.”
Traditional retailers are struggling with the opposite problem: too much bricks-and-mortar space. Giants including Wal-Mart StoresInc., Gap Inc. and Sears Holdings Corp. are closing stores and subleasing space to others.
In part, Web retailers are grappling with the realization that even after years of strong online-sales growth, some 90% of shopping is still done in physical stores. Many customers prefer the immediacy of physical stores, even as Amazon and others roll out one-hour delivery to more markets, and the ease of product returns.
Ethan Song, CEO of Montreal-based men’s clothier Frank & Oak, said its 11 Canadian and U.S. stores help eliminate the uncertainty of buying clothes without trying them on first. “We’ve found that many customers want to engage with the merchandise before buying it,” he said. “And there’s a level of service and personalization that just isn’t possible on the desktop.”
For Web startups including beauty products seller Birchbox Inc. and jewelry retailer BaubleBar Inc. that have branched out, stores are effectively showrooms and a checkout process that often prompts customers to register an online account.
Bonobos’s 20 stores don’t stock piles of khakis and button-down shirts for shoppers to buy. Instead, customers try on samples to gauge how they fit and then place orders online.
Shoppers who visit a store first tend to buy 50% more than those who shop online, and return rates are lower, Bonobos CEO Andy Dunnsaid.
‘There is a certain segment of the population that’s just never going to feel comfortable buying a $7,000 engagement ring online.’
Mr. Dunn said when he started Bonobos in 2007, he assumed retailing would be 100% digital. “What we got wrong was the role that offline would play in an online world,” Mr. Dunn said. He said he believes shoppers will eventually split their dollars equally between online and offline.
A Bonobos store in New York. PHOTO: PETER FOLEY FOR THE WALL STREET JOURNAL
Blue Nile’s lone jewelry store at a Garden City, N.Y., mall is just 325 square feet, about the size of a Manhattan studio apartment. The store lets customers try on rings or examine an array of stones, but the orders are still routed through the website, letting the company gain new email addresses to which it can send promotions. Blue Nile, which started in 1999 and now has about $500 million in annual sales, plans to open at least three new stores this year.
“There’s a certain segment of the population that’s just never going to feel comfortable buying a $7,000 engagement ring online,” said CEO Harvey Kanter.
