Do Amazon’s Latest Moves Signal Strength, Confidence in Brick-and-Mortar Retail?

Amazon Go, a 1,800-square-foot grab-and-go convenience store with no lines and no checkout, launched in Seattle this past January. Amazon Go, a 1,800-square-foot grab-and-go convenience store with no lines and no checkout, launched in Seattle this past January.

Retail real estate has more than just a slight emphasis on the property portion of the retail landscape. Since most shopping center players have had that part of the equation down pat, many of these real estate experts are now focusing on their counterpart. They’re ramping up their online, social media and other technology-driven strategies to create a well-rounded omnichannel approach that caters to a wide array of customers.

This hasn’t taken the focus off brick-and-mortar storefronts, however. Not by a long shot. While it is true that the internet can lure dollars away from shopping centers, many online-only retailers have realized they simply cannot maximize profits, reach or customer base without a physical presence.

“Most pure-play online retailers are reporting that when they open a physical store in any given geography, their local online sales increase by anywhere from 20 percent to 40 percent,” says Garrick Brown, vice president of retail intelligence at Cushman & Wakefield in Sacramento, California. “This is because physical storefronts act as embassies of the brand. They enable the online retailer to meet a new audience.”

The retail world is no longer online or brick and mortar. These terms — once diametrically opposed — are now married to one another. It’s bricks to clicks + clicks to bricks = bricks and clicks. They’re the yin to the other’s yang. In fact, some of today’s largest e-commerce companies are also some of the most active in the real estate space. Nowhere is this more evident than Amazon.

THE AMAZON (POSITIVE) EFFECT

“Amazon is now the largest bookstore, hardware store, movie rental service, clothing retailer and grocery store, to name just a few retail categories, and they can get those products to you the same day by 9 p.m. if you want to order it sight unseen and pay for it based on what you see online,” says Anjee Solanki, national director of retail services USA at Colliers International in San Francisco. “So why, then, has Amazon embarked on a brick-and-mortar building program? Funny, I thought Amazon was about to take over the world, but even it realizes that driving foot traffic to the mall can benefit its new stores.”

Amazon now maintains a physical presence in an assortment of shopping centers, categories and services. Its brick-and-mortar initiatives kicked off with the Amazon Books stores in late 2015. The online giant now operates 15 locations nationwide, with another three in the works. The company then announced plans to acquire Whole Foods Market and its nearly 500 stores for $13.7 billion in June 2017. The deal exemplified how bricks and clicks are not mutually exclusive, but rather, mutually beneficial. Whole Foods’ private-label products are now available on Amazon’s delivery platforms, while Amazon Lockers appear in Whole Foods stores and its Prime members enjoy special in-store benefits and savings.

The company launched Amazon Go, an 1,800-square-foot, tech-forward grab-and-go convenience store in Seattle this past January. Though nothing is official, reports say the former online-only retailer will open six more locations by year-end.

“We asked ourselves: what if we could create a shopping experience with no lines and no checkout?” states the Amazon Go page. “Could we push the boundaries of computer vision and machine learning to create a store where customers could simply take what they want and go? Our answer to those questions is Amazon Go.”

‘RETURNING’ TO BRICK AND MORTAR

Aside from its own shop space and mergers and acquisitions, Amazon has also taken on traditional retail partners to expand its scope and service offerings. A prime (no pun intended) example of this is Kohl’s, which announced this past October that it would offer free Amazon returns to customers in 82 Chicago and Los Angeles-area stores.

Brown, for one, believes we’ll begin to see more marriages of convenience in the future.

“Returns are the Achilles’ heel of e-commerce,” he says. “The typical return rate for physical retail apparel stores is 10 percent. The return rate for online apparel is 30 percent. If you are an online retailer, that means that not only did you not get a sale, but you have two shipping charges that you most likely have to eat. However, most surveys have shown that consumers would rather return online goods to a physical location simply because of the complications of setting up a call tag, dropping it at a postal station, etc. Additionally, when customers return goods in a physical store, they end up purchasing items roughly 80 percent of the time.”

It should come as no surprise, then, to learn that Kohl’s offers dedicated upfront parking spaces and a 25 percent off in-store coupon for those who take advantage of Amazon Returns at Kohl’s. The big box retailer is also testing Amazon Smart Home Experience shop-in-shop spaces in 10 of the stores that already feature the return program. The stores allow customers to try out Amazon smart devices in store, learn about the products from Amazon associates and schedule installations upon purchase.

Though these bricks-and-clicks efforts may be innovative and novel, the inner pragmatist in some real estate professionals may be wondering if this is simply another unproven marketing ploy that will eat up cash and resources. Luckily, there’s a stat for that.

Kohl’s stores that feature Amazon returns have outperformed the chain’s other outposts by 8.5 percent, according to Chuck Grom, senior retail analyst at Gordon Haskett Retail Advisors in New York. The partnership has also brought new customers to the big box retailer, while Amazon-related visitors seem to remain at the store and shop after their return is completed, Grom further notes.

The retail landscape will continue to evolve and the line between online and in-store sales will likely appear fuzzier and fuzzier. Through all of this, however, one thing is clear. Those who can truly embrace the omnichannel platform know online needs in-store, and in-store needs online. Though this may be a marriage of convenience, the benefits are apparent and, when successful, the feelings are mutual.

This article originally appeared in the Retail Insight newsletter by Shopping Center Business. This is a six-week publication created in conjunction with our content partners, which sponsor the newsletter, leading up to ICSC RECon and including post-conference coverage. Click here to subscribe.