By Greg Bensinger and Suzanne Kapner
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.
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 Stores
Inc., 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 Dunn
said.
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.
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.
Write to Greg Bensinger at greg.bensinger@wsj.com and Suzanne
Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
February 05, 2016 16:48 ET (21:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Sep 2023 to Sep 2024