Is Amazon about to make a u-turn?

Amazon.com founder Jeff Bezos is often depicted as the demolition man, not just reshaping the economics of the book publishing sector but wrecking the livelihoods of bricks-and-mortar book retailers everywhere. So the rumour that Amazon may soon open a retail store in its home town of Seattle has been greeted with a degree of astonishment.

While a single experimental store opening by a $US48 billion ($45 billion) business hardly signals a tidal change in strategy, it is the counter-intuitive nature of the idea that intrigues. It is what Fast Company magazine has labelled “mission whiplash”.  How does such an idea make sense for a business that’s come so far without an ounce of street presence?

The answer probably lies in the nature of the stores being planned. Clearly there’s little need for Amazon to repeat history by launching full-range book stores, as scores of these have already been wiped out by their online service model, and many more are still likely to fall.

Besides, as one wry blogger observes, a complete Amazon store would need to be as large as Seattle’s Boeing airline factory to accommodate its total online offering.
Rather, the rumours suggest Amazon will pilot small stores, showcasing Kindle e-readers, along with a selection of books it now publishes directly, rarely seen on the shelves of traditional book retailers for obvious reasons.

A physical Amazon store surely wouldn’t be about moving books in any meaningful quantity. It would focus on Amazon exclusives and, in particular, getting e-readers into the hands of mainstream customers, to start to experience what Bezos describes as the Amazon “integrated media service”.

The Huffington Post reports that Amazon has filed store designs for patent protection, suggesting it has got Apple’s powerful retail formula in sight: out-of-the-ordinary stores designed to entertain and involve just as much as they move merchandise (although Apple is certainly no slouch in getting the cash register to ring; its landmark Fifth Avenue store in New York is the highest grossing retail space on the planet).

What the Apple experience teaches Amazon is that virtual products, like Apple’s iTunes or Amazon’s Kindle Whispernet service, will feel more real and relatable in welcoming, high-touch retail environments. No amount of online pitching can match the experience of holding a new content access device in one’s own hands.

A small incremental investment in showcase retailing would be a drop in the ocean for Amazon, which is already believed to be losing money on practically every Kindle sold. It is taking a long-term view and recognises the rivers of gold for it are in the content and in the long-term relationship with customers, not in the price captured for the device. Bezos recently remarked in Fast Company that Amazon has a unique approach in the marketplace, offering “premium products at non-premium prices”.

Taking a well-aimed shot across Apple’s bow, he said: “We’re a company very accustomed to operating at low margins. We grew up that way. We’ve never had the luxury of high margins, there’s no reason to get used to it now.”

While Amazon may be set to emulate Apple’s retailing strategy on some levels, these two titans are on an intriguing collision course around content.

Speaking of titans, rumours of Amazon’s bricks and mortar temptations have been quickly followed by whispers from the Google camp that a Dublin concept store is in the works, no doubt triggered by Google’s acquisition of the Motorola device business.

It seems the most ethereal of digital brands are suddenly grasping the unique value of a physical presence through both devices and stores. And the new retailing gold standard is shaping up to be “bricks and clicks” after all. Australian retailers listen up: all is not lost yet. Connect the clicks to the bricks and you might yet get back in the race.

Wayde Bull is planning director of the brand consultancy Principals.

First published on AFR (www.afr.com) - 16th February 2012

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