Amid many myths and rumors, this research sheds light on the facts, corporate communication, and the evidence from physical store openings. Long quality read.

Imagine you own 43% of your online market, and 50% of the online growth, but 85% of your market continues to be brick & mortar? Imagine experiencing international markets that are smaller and more complex, making it more difficult to secure the same strong growth.

Amazon Sales Share (graphic Amazon.com)

Imagine how the political climate of your home country is in flux, and how you are blamed for jobs lost at your weaker retail competitors. Wouldn’t you consider investing in retail to grow brick & mortar stores too?

The Amazon Retail Strategy – Myth vs. Evidence

The brief scenario I’ve proposed above is a tempting rationale for Amazon’s investment in retail, isn’t it? But it is also pure speculation, partially derived from reading high profile media. Following that storyline means ignoring the facts currently available about the Amazon retail strategy. The facts are:

• an in-depth screening of corporate communication (annual reports, analyst presentation) doesn’t yield any official statement about any Amazon retail strategy.
• neither Jeff Bezos nor any other Amazon top executive has made any public statement (speeches, interviews) on major retail growth plans the last 5 years. Rather the opposite.
• Amazon is testing 5 different brick & mortar ways to support online consumers, including new technology.
• for the majority of those retail trials, it remains unclear whether and when they might qualify for big scale investment, for which Amazon has very high standards.
• Amazon aims to acquire organic supermarket chain Whole Foods, but has not made their motivation or concrete strategic direction public.
• Amazon’s trials create a great breeding ground for an Amazon retail strategy hype, fueled by Tech Guru’s and media, to support their case.
• All current Amazon retail trials together equal their online sales growth of less than half a day, at the most.

So, perhaps it’s not surprising that we don’t find a single one of Amazon’s various retail trials listed on their corporate overview of important strategic projects.

20 of Amazon’s 40 Core Innovations. So far, Brick & Mortar Retail isn’t one of them (Screenshot Amazon.com)

Amazon Retail Strategy – a Series of Trials

The last traceable official statement on the Amazon retail strategy comes from Jeff Bezos himself

Jeff Bezos (photo Steve Jurvetson)

and is 5 years old. Back then, he re-emphasizes in a TV Interview what he wrote in a letter to shareholders in 2007:  ‘I often get asked, “When are you going to open physical stores?” That’s an expansion opportunity we’ve resisted.’ He explains in 2007, and in 2012, that a retail expansion has to fulfil investment criteria for new business ideas. He outlines how retail does not qualify for many of those criteria: ‘We don’t know how to do it with low capital and high returns… we don’t have any ideas for how to build a physical world store experience that’s meaningfully differentiated for customers.’

Well, technology and consumers have evolved, and maybe Amazon is now closer to finding a consumer differentiating idea. A review of the known state of retail testing may provide a clearer indication. While there is limited corporate communication on the retail trials, some of them are open to the public.

Pop-up Kiosk: Launched Nov 2013, Currently 30 Locations, growing to 80 pre-Christmas

The first kiosk opened in Westfield Center Downtown San Francisco. While at first it a was a Kindle Paperwhite location, the brand presentation later evolved towards an Amazon kiosk. The Westfield pop-up currently has a size of 20m² and presents a snapshot of Amazon’s own consumer technology: in SF an Alexa-powered Echo speaker, various Kindle models, and fire TV. But no sign of the Dash buttons. In a way, the store’s presence is no different from brand presentations of other well-known consumer electronic brands. Maybe with the difference that you can buy and take away from Amazon, making it a “true” retail format. And given the high speed of expansion, the pop-ups seem to be Amazon’s most successful brick & mortar format.

Amazon Go: Trial Announced December 2016, Public Opening Postponed

Amazon’s Go is a 180m² convenience store in downtown Seattle. Unlike its other retail tests, this store was launched with its own PR feature about the innovation and its coming unique consumer experience. That created expectation, that has not been fulfilled yet. The store is still closed, a year after its launch announcements.

Thirteen months after going viral, the store continues to be in test mode. Well-connected resources believe to know that the heavily promoted check-out technology is not working, and high-caliber retail executives speculate that ‘7 months not opening says something’. Maybe. But Amazon is known for its sophisticated testing culture. Some of their now successful online features have been launched three times before they became a success (i.e. Amazon Auctions turned into zShops before it finally became successful as Amazon Marketplace). Let’s wait and see how Amazon Go will evolve. Given Amazon’s consumer determination, there’s a good chance Amazon Go will bring forward a break-through technology. We may just have to be patient for a few more months.

Amazon Fresh Pickup: Launched May 2017, Currently 2 Locations, not growing last 6 months

Although often described as the definite proof of an Amazon retail strategy, it is not actually a retail store. Amazon Fresh Pickup are local food and grocery warehouses, and consumer pick-up locations. As such, they are extensions of the Amazon Fresh Online offer. The first two locations opened to the public in Seattle, where local Amazon Fresh customers can now choose either to buy online with home delivery or to order from the local warehouse and pick up in person. Like with Amazon Books, consumer travel between the online and offline world is not seamless yet. They are two different online shops, with two different offerings, with partially different prices. So far Amazon Fresh gets only mixed reviews from consumers.

I refrain from commenting on the big scale perspective. Yes, many omnichannel supermarkets offer a wider selection locally and other cross channel services. But let’s wait and see whether after a few more pilots Amazon may beat the supermarket shopping experience.

Acquisition of Whole Foods: Announced June 2017

The Whole Foods acquisition has been successfully completed. Strategically, the acquisition makes a lot of sense and is by far the strongest indication of Amazon’s retail commitment. But Whole Foods has a very particular corporate culture and is geared towards a very different consumer. So only time will show whether Amazon is also successfully integrating acquisitions.

So far Amazon shared only small pieces on its Whole Foods strategy. What is clear, Amazon’s management didn’t waste time to get involved in day to day retail operations and announced to cut prizes on bananas and other product categories, right in the first week of joint operations. Amaon also started to invest in joint cross channel activities. Beyond, it remains to be seen whether Whole Foods will be incorporated, or whether Amazon wants its own retail to learn from Whole Foods, as publicly declared. What is known is, that Whole Foods represents Amazon’s largest single investment ever. It is therefore highly likely that the company will do everything it can to get it right.

Amazon Campus Pickup: Launched February 2015, Currently 20 Locations, growing 1 per month

Similar to my experience at the Amazon Book store, the company struggles to keep consumer information up to date. The locations are 200-300m² in size, and university students, as well as locals, can use the location to pick up Amazon orders from there. There are no books on display, so all orders take place online.

Not much information about consumer experience is publicly available, but the campus locations represent Amazon’s first willingness to invest in physical service locations. Technically, Amazon Campus doesn’t provide more functionality than a post office pickup. But the convenient locations right on campus, in proximity to thousands of young consumers, is strategically a smart move.

Amazon Book Stores: launched November 2015, Currently 13 Locations and no expansion last 6 months

The book stores represent Amazon’s second true retail (defined as a location that offers and sells products to consumers) operation. The stores offer a selection of bestsellers in books, Amazon’s own consumer electronics and services with a strong online-offline interface. Though the consumer journey still lacks some cross channel services and has room for significant improvement (see Cross Channel Service: What Amazon can learn from other Retailer).

Global successful specialty retailers grow 5-10 stores every months. Amazon’s 3 year expansion track record is not necessarily an indication for successful growth. But it is at least another good learning platform for brick & mortar experiences.

And Amazon’s Future in Retail?

My travel through Amazon’s retail in California, Oregon and Washington (including the online and offline world) was rich in experience and in some ways full of surprises. I learned, again, always take a close look at the true evidence. For the time being, there is more Amazon retail hype than actual corporate communication, a proven track record of dynamic openings, or superior consumer experiences. If this news finds you somewhat relieved, don’t be mistaken: Amazon’s strong track record of innovation has the potential to transform it into an advanced brick and mortar retailer very fast.

What is clear for now: Communicating about Amazon’s retail strategy is a great way to push online and offline industries towards advanced customer service investments. And that’s not a bad thing. I’m inclined to predict that it will not take another three years before we hear a new statement from Jeff Bezos on Amazon’s retail strategy.

About the author

Guido has been working with well-known brands and retailers for over two decades and is a loyal Amazon customer. In brick and mortar retail, however, he believes that Amazon’s strongest value is its energizing factor for advanced consumer experience. For a dialogue on Amazon or your own retail, you can reach him best by email.