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Amazon in Brick and Mortar: The Retailer’s First Move into Omni-channel

By Brett Thiessen  February 24, 2016

In late fall Amazon announced they were diving into traditional retail by opening their first stores. In January, the first Amazon Books store opened in Seattle. Amazon has announced plans to open 300-400 other bookstores across the nation. But are bookstores really the only focus for Amazon in this new effort? And why is this ecommerce giant now moving to an old model that by some accounts is a dying breed?

Omni-channel is the buzz for retailers of all varieties, and is a challenge that LLamasoft helps customers work through regularly. With consumers shopping in different ways and the endless amount of choice available, retailers are working to quickly adapt their strategies. The potential of the storefront to double as a rapid response distribution center is an enticing opportunity. That’s part of the reason that Amazon’s play into traditional retail is so interesting.

Amazon is constantly working to improve their shipping process, cutting lead times and hitting high service expectations. In working toward reaching that goal, they have been trying to get goods closer to the customer.  In order to reach that, store fronts could serve as mini distribution centers, 400 or so strong, strewn across the country. Which raises the question: is Amazon’s foray into physical stores as much about retail as it is about an immediately-near-customer distribution strategy?

One of the biggest benefits of the Amazon model is the sheer breadth of SKUs they carry, allowing customers to buy everything from toothpaste and toilet paper to luxury goods and electronics from nearly every brand under the sun. But sustaining that number of SKUs in a traditional retail setting is not going to be feasible. The stocking needs of the retail stores and the needs of the retail consumer may not align. Amazon will face the challenge of how to management the trade-offs of what people prefer to purchase online versus pick-up in store. For example, would it make sense for Amazon stores to carry lightbulbs, competing against big boxes like Wal-Mart, Target and Home Depot, or would that negate the appeal of buying lightbulbs from Amazon in the first place (the convenience of skipping the store or adding to the cart total to secure free shipping). What will the back room of these stores look like? Will they be stocked with books and the retail facing items, or will there be a whole host of products to serve the needs of the online customer quickly but would never see shelf space in the consumer facing store front.

The full plan for these retail stores has yet to be seen. While the first store opened in Seattle is a bookstore, there is a lot of interest surrounding whether or not Amazon will plan the same for the remaining 300-400 or if they will adopt a more mass retailer approach for some.

If mass retail is on the horizon, network optimization can help Amazon figure out where their customer concentrations are and scenario analysis could prove helpful in determining what SKUs are most wanted and where, but figuring out the right mix of SKUs to hold at what location and in what volume will likely take time.

If this is a Trojan Horse move into chopping down the distance between online consumer and product storage it will be the next move in a rapidly evolving distribution strategy for the ecommerce giant. Amazon initially optimized on locating distribution centers just outside of major population centers to expedite delivery but keep the advantage of the internet sales tax loophole of the time. With market share in hand and political pressure mounting to enforce the sales tax universally, Amazon moved to a more tradition network configuration. If this is Amazon’s big move into getting closer to that final mile delivery, it will likely push omni-channel into the forefront of the next wave of customer fulfillment.

Amazon is certainly not the first online-only retailer to move into the brick and mortar space. Shoe and accessories innovator Tom’s and eyeglasses disrupter Warby Parker also come to mind as retailers who focused predominately on ecommerce initially, but found benefits to physical locations, including consumers ability to interact with the brand in a new way. Time will tell if this move by Amazon is following the lead of these online retailers or blazing a bold new trail of building the store to get the distribution center, the opposite of traditional retailers. Regardless of Amazon’s strategy, their record for success makes one think this latest endeavor will be a strategic one as well.