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There is arguably no company that revolutionized retail the way Amazon.com (NASDAQ: AMZN) did. Amazon single-handedly changed the way Americans shop. Its disruption of the industry has catapulted Amazon to become one of the world’s biggest retailers.
If recent reports are true, Amazon may be on the verge of another major shake-up, although this one might not be quite what investors expect.
According to Sandeep Mathrani, the CEO of mall operator General Growth Properties (NYSE: GGP), Amazon intends to open as many as 400 physical bookstores. Mathrani made this comment on the company’s earnings call.
General Growth Properties eventually walked back those comments. The company soon issued a press release clarifying that Mathrani’s comments were not intended to represent Amazon’s plans. No matter – the comments have certainly got the investment community talking.
What Could Amazon Be Thinking?
If Amazon is planning to open physical bookstores, what are the implications for investors?
Amazon’s reported desire to become a brick-and-mortar retailer is confusing for a number of reasons. First, Amazon’s Internet-only presence is what allowed it to dominate the retail landscape in the first place. The major advantage for Amazon is that it doesn’t have to spend huge amounts of time and money building its own retail stores. Instead, it has focused its resources on expanding its distribution network and offering lower prices than brick-and-mortar retailers.
This phenomenon became known as “showrooming,” whereby consumers would go to physical stores to inspect products in person and ask questions to staff members, only to go home empty-handed and purchase those items cheaper on Amazon.
That’s especially true when it comes to bookstores. One of the industries that has been disrupted the most from Internet retail is the publishing industry. Media and literature are being consumed increasingly on mobile devices and less in physical print form.
Plus, the decision to go brick-and-mortar would be perplexing because it would seem to be a distraction from Amazon’s biggest growth drivers, one of which is its cloud-based Amazon Web Services business. Amazon Web Services hosts companies’ online content and apps in its massive data centers.
Revenue from Amazon Web Services soared 71% in the fourth quarter, to $2.4 billion.Separately, Amazon’s core retail business grew fourth-quarter revenue by 25% year-over-year. This helped the company as a whole generate 22% revenue growth last quarter, which seems to make it clear where the company’s focus should be.
If the reports are true, the move to build brick-and-mortar stores would seem like a step backward for Amazon. In the digital age, brick-and-mortar stores aren’t as necessary as they used to be, particularly for younger consumers who are more technologically adept than older generations.
A Potential Dagger in the Heart of Bookstores
The bookstore industry is deteriorating at a rapid pace, evidenced by the struggles of booksellers like Barnes & Noble (NYSE: BKS). Barnes & Noble has just 640 stores left and its sales are in decline. Perhaps Amazon has something up its sleeve. One reason to build physical stores would be to send one final nail in the coffin of existing bookstores like Barnes & Noble.
Moreover, having a physical presence could help expand Amazon’s reach to customers who don’t currently shop on the Internet. It could be a way to boost Amazon’s brand, similar to when fellow tech giant Apple (NASDAQ: AAPL) built its own retail stores.
Those would be the only conceivable reasons why Amazon would want to build brick-and-mortar stores. After all, Amazon became the beloved company it is today largely because of the convenience it offers consumers by bringing all sorts of goods right to one’s doorstep.
The decision to build brick-and-mortar stores would seem strange, although Amazon has proven time and time again that it’s not wise to bet against it.
DISCLOSURE: Bob Ciura personally owns shares of Apple (NASDAQ: AAPL).
The Ghost of Steve Jobs
Before he died, Steve Jobs gave an interview to the New York Times where he revealed his desire for Apple to create something unlike anything the world had ever seen. Though Jobs is no longer around, his dream for this technology is alive and kicking. According to global consulting firm KPMG, this technology “could provide solutions to some of our most intractable social problems.” And Morgan Stanley believes it could save the American economy $1.3 trillion each year.