Amazon Stores Score Data, Upscale Customers for Ecosystem

Amazon’s physical bookstores may look like their remaining competitors’ shops, but Hans Klis goes inside the aisles for a look at how the online retail giant is disrupting the brick-and-mortar trade from inside the shopping mall.

If it weren’t for the yellow smile pointing from the letter A to Z affixed atop of the entrance, you wouldn’t know you stumbled upon the Amazon Bookstore on the third floor of the Time Warner Center in New York. This supposed ‘bookstore of the future’ unflatteringly looks a lot like the ones found at airports.

A closer look reveals tiny but crucial differences that hint at the innovative, disruptive and algorithmically driven Amazon machine within this small store.

All the book covers are facing toward the customer. They’re arranged not only by genre but also categories that feel natural to the regular Amazon customer: e.g ‘highly rated’ (with 4.8 star ratings or higher) or “if you like, you’ll love”.

There’s also a case filled with ‘Popular books in the Time Warner Center,’ like Stephen Hawking’s “A Brief History of Time” and Chris Anderson’s “TED Talks;”  books bought online in the vicinity of the Amazon Store on Columbus Circle.

But most importantly, the whole shopping experience is built around using the Amazon Shopping app. You check prices of books by using the camera on your phone. It sends you straight to its page on Amazon. By scanning a QR code at the checkout counter you instantly pay with the debit or credit card linked to your Amazon account; the physical equivalent of the ‘Buy now with 1-Click’ button. It’s as if you’ve passed through the screen and into the Amazon interface on your device.

This Amazon brick and mortar bookstore was the seventh to open in the United States. The tech giant currently operates a dozen bookstores across the country with three more opening in California, Texas and Washington DC. In more than fifty US cities, the platforms offers two thousand lockers for consumers to pick up orders. Amazon’s acquisition of Whole Foods brought more than 450 more physical touch points to the brand. That’s quite a tactile presence for an online retailer.

But are Amazon’s physical stores driving its revenue? The Whole Foods locations definitely are. According to the earnings report for the most recent quarter this recent addition to the Jeff Bezos corporate family brought in $1.3 billion dollars in sales. But that’s less than three percent of the 43.7 billion dollar in revenue (34 percent year-over-year-growth). Most of the revenue comes from its profitable cloud services.

A lot of online retailers are creating physical touch points to promote their brands. Look at Bonobos. In 2007 the menswear retailer started as a pure play digital shop that aggressively branded itself as online only.

But after opening so-called guide shops, a showroom where purchases are delivered to the customer’s home, Bonobos found that sales in-store are double that of online orders. This is in-line with research done by Ohio based marketing and retail consulting firm WD Partners. “Our research finds that when a brand opens up a showroom store in particular neighborhood, ecommerce sales grow,” explains Lee Peterson, executive vice president, Brand, Strategy & Design for WD Partners.

According to Peterson’s numbers, he sees the chance that consumers, across all age segments, walking into that store and making a purchase increases by 60 percent. For Nordstrom, which recently opened a new showroom concept in the trend West Hollywood neighborhood of Los Angeles, that might be a winner according to Peterson. Especially if it can transplant the so-called Nordstrom Local concept to areas in the United States where the retailer has no physical presence yet.

So having a physical store - preferably a showroom with low costs (no inventory, limited square footage, less staff) – is very effective in both driving brand awareness and online sales. But does Amazon need more recognition?

According to research by St. Louis-based brand agency Moosylvania, the online retailer is one of the most recognized brands globally by Millennials. Moody's Investors Service places the number of consumers at about 45 million, while research firm Consumer Intelligence Research Partners estimates it’s more than double that. That’s leaving the casual shopper out of the picture.

With $43.7 billion in revenue, Amazon doesn’t really need brick-and-mortar locations to ramp up its sales. So while smaller fish like Bonobos (recently bought by Walmart) might benefit from showrooming, why is Amazon in the store game at all?

Peterson says, “Amazon is not a normal retailer. They’re not in it for the sales. It’s about collecting data: what do people like, how do they browse in a store.”

Amazon essentially is a search engine. It collects click-stream data from customers and combines that with historical purchase data to customize customer interfaces, change prices and maybe one-day offer anticipatory shipping.

Now it becomes clear why the friendly staff of the Amazon Bookstore keeps asking customers if they’ve downloaded the Shopping app on their device or if they’re Prime-members. “The store is a physical touch point to create awareness of possibilities of being part of the Amazon family,” says Meaghan Werle, an ecommerce analyst with Kantar Retail. But it doesn’t explain the location choice. “A suburban neighborhood would be better (than midtown Manhattan),” she says. “New York already has a very large concentration of Prime members”.

The answer to this question can be found in the design of the bookstore on Columbus Circle. Consumers who enter the store first have to walk through an area filled with all the devices Amazon have to offer. Here, staff is eager to explain how the voice activated intelligent personal assistant Alexa works. Or an Echo Dot.

“It’s all about getting the consumer into the ecosystem of Amazon”, Werle says. Thursday’s announcement of offering ‘to help set the holiday table’ by making Amazon Echo’s available for purchase in more than a hundred Whole Food stores, can now be seen in a different light. It’s all about making Amazon your number one retailer, search engine and news provider. And, almost as an afterthought, redesigning the way consumers interact with stores.

Nick Egelanian, president of retail real at estate consulting firm SiteWorks, helps put Amazons omnichannel strategy into perspective. Looking at how 92 percent of sales are still done in stores, and how Amazons revenue is still relatively small compared to the $5.3 trillion total of 2016.

“Amazon’s cloud business is its most profitable company,” Egelanian says, adding that in the end Amazon is not aspiring to be a retailer but a platform not unlike a Facebook or Google: “Ad platforms that’s where the money is.”

Following Amazon’s entry into the brick-and-mortar realm, Google and Walmart partnered up this summer. The latter is maybe the only real competitor Jeff Bezos has right now in the United States. After acquiring potential Amazon-killer Jet.com it now offers the same voice activated personal assistance as Alexa in the form of Google’s Home device. “Next year, we will leverage our 4,700 U.S. stores and our fulfillment network to create customer experiences that don’t currently exist within voice shopping anywhere else,” Walmart’s ecommerce CEO and former Jet.com founder Marc Lore wrote on the company’s blog. He wrote that includes “choosing to pick up an order in store (often for a discount) or using voice shopping to purchase fresh groceries across the country.”

Traditional retailers are adapting their omnichannel strategies too. Not only is Nordstrom going into showrooming, it also hopes to emulate Amazon’s fast delivery time. The Nordstrom store in West Hollywood will be a pick up point for customer’s orders. Bigger stores in the vicinity like the ones at Westfield Century City Mall and The Grove will fulfill these orders, thus creating an effective and fast last-mile delivery system that rivals Amazon’s.

With its bookstore and omnichannel strategy Amazon is betting on more than capturing consumers interest and cash, although it now faces fresh challengers from traditional retailers such as Walmart vying for a larger share of the data pie.