Amazon hopes that expanding its presence with physical department stores, it can pull in more shoppers and take a larger market share.
According to a Wall Street Journal report, Amazon.com Inc (NASDAQ: AMZN) plans to open department stores as the retail giant looks to experiment in physical retail. These brick-and-mortar stores will be large physical locations and join an array of physical bookstores, grocery stores, and cashier-less convenience stores the company already operates. Sources familiar with the matter say Amazon plans to site some of its first department stores in California and Ohio.
Although at a proposed size of 30,000 square feet, the stores will still be a third of a traditional department store which typically occupies 100,000 square feet. However, they will be equivalent in size to a Kohl’s or T.J. Maxx location and will also offer items from top consumer brands.
Although Amazon shares have lost more than 11% in the last month, it is currently trading in the green.
Amazon’s e-commerce business has done tremendously well, even helping the company scoop a sizable market share in the retail sector. The retail giant recently surpassed Walmart as the world’s largest retailer outside of China and now intends to venture into physical retail stores.
Amazon believes that that the stores can draw more potential shoppers, regardless of the costs of operating physical locations. In addition, having a physical store can also afford shoppers the luxury of trying on new clothes, which translates to higher sales in clothing. Amazon is also looking to boost the sale of its technology products through these department stores, in addition to selling its own private-label goods.
According to the WSJ report, the retail giant began approaching US clothing brands about huge department stores nearly two years ago. However, it is still unclear how many or even which clothing brands Amazon will stock in its physical locations.
Proposed Amazon Department Store Could Shake Established Players
Amazon’s latest foray into physical department stores will undoubtedly put some pressure on competitors already working in that space. The retail segment is struggling, and last year, notable retailers such as J.C. Penny, Lord & Taylor, and Neiman Marcus all filed for bankruptcy. However, it should be noted that some of these insolvent companies like J.C. Penny are beginning to rebuild under new ownership.
Other chains are trying to reinvent the wheel with new ways for their businesses to stay relevant. For instance, Nordstrom and Macy’s, among other things, are opening smaller format stores and improving their e-commerce presence.
In recent years, Amazon bought Whole Foods Market in addition to opening brick-and-mortar bookstores. It also started Amazon-branded grocery stores and cashier-less convenience stores as part of its Amazon Go shops technology. The first store is 10,400 square feet and stocks about 500 items, including fresh produce, meats, and alcohol.
So far this year, Amazon’s shares have fallen by more than 1%. Regardless, the company currently has a market value of $1.59 trillion.
Department stores used to be a thriving business, as shoppers could find everything they were looking for under one roof. However, the emergence of online retailers, discounters, and fast-fashion retailers gradually edged these businesses out.