If Amazon.com, Inc. (AMZN) isn’t really interested in getting any deeper than its one bookstore located in its hometown of Seattle, Washington into the world of retailing, then it’s sure got a funny way of showing it. Monday morning, the company announced it was opening a second bookstore in San Diego.
Operating two bookstores rather than one still isn’t a reason in and of itself to buy AMZN stock.
If peer and rival Barnes & Noble (BKS) is any indication about what sort of revenue potential an Amazon store has, the two Amazon venues can only expect to generate about $20 million in annual sales between them.
On the other hand, if a major brick-and-mortar presence is the shape of things to come — and it looks like it is — then this new venture may indeed make AMZN stock investment-worthy.
Another Amazon Store?
Even before the dust had fully settled on the November grand opening event for Seattle’s Amazon store, the company announced its second outlet would open sometime this summer at San Diego’s Westfield UTC Mall.
The news rekindles chatter that first surfaced in early February after General Growth Properties (GGP) CEO Sandeep Mathrani (perhaps mistakenly) mentioned that Amazon was looking to open between 300 and 400 bookstores.
Mathrani later retracted the statement, and Amazon.com itself was altogether quiet on the matter. But, in that (1) the CEO of a major mall operator would know, (2) Amazon had already opened one such store and (3) the figure/range cited by Mathrani was suspiciously specific, it wasn’t a tough pill to swallow. Monday’s news fans the flames of the notion that Amazon is indeed en route to becoming a retailer.
Granted, two stores is a far cry from 300 to 400 venues, and even if that’s what’s in the cards, it could still take years for the effort to be reflected in the value of Amazon stock (for better or worse). But any number greater than one becomes more than just a mere experiment. At the very least, the market can look for more stores in the foreseeable future.
And AMZN shareholders should be thrilled.
A Brilliant Move
As was explained in February, an Amazon bookstore isn’t really about selling physical books to consumers who want to shop for a book. It’s about catering to a lifestyle — one we increasingly live digitally — offering an entertainment venue that also facilitates pickups for online orders. Once an online shopper is in a physical store (the easy part) to pick up a parcel, then impulse shopping (the hard part) is readily induced.
Indeed, if nothing else, a physical presence facilitates a cost-effective way for Amazon to offer free shipping, sending all those ordered goods to one location on one truck rather than sending hundreds of packages out by third-party delivery services.
ABI Research analyst Patrick Connolly agrees, saying:
“It’s indicative of this move to omnichannel. The last ten years in retail it’s been bricks and mortar versus online. Now we’re moving to omnichannel, you have to be across all channels. So now everybody is in the same boat. All of a sudden, having bricks and mortar is an advantage … I really don’t think they’re that interested in selling books. If you look at how the store is laid out, it seems to be set up to gather information about customers, much like they do online, and seeing whether that works in real life …”
In other words, whereas Barnes & Noble aim to make a buck by selling books in stores, an Amazon store leverages several facets of the company’s operation, some of which can be loss-leaders. Again, it’s not a bookstore — it’s a lifestyle store, and a digital-lifestyle store in particular.
Bottom Line for AMZN Stock
From a company that’s come up with some downright silly ideas of late, the idea of a network of Amazon stores is a surprisingly brilliant one that could, in the long run, do some real good for the value of AMZN stock.
See, contrary to popular belief, brick-and-mortar retailing isn’t dead … It’s just changed. Too many retailers didn’t make the adjustment to new technologies and new consumer preferences. Amazon is simply building from the ground up what other brick-and-mortar names are striving to become.
In other words, with a second Amazon store voluntarily underway that leverages a proven name to a growing number of consumers who don’t mentally separate e-commerce and in-store shopping, it’s not tough to believe there’s more of the same on the way. That should be a real victory for Amazon.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
