But what does this reveal about Amazon’s Brick & Mortar strategy?
Last week, headlines surfaced speculating the potential sale of Massachusetts-based BJs wholesale club to Internet retail-giant Amazon. While the rumors have since been dispelled, it does raise the interesting prospect of Amazon turning to a more formal Brick & Mortar strategy. Would such a move bring us back to traditional retail, or instead be another distruption?
If you were to ask a stranger on the street what words they associate with “Amazon,” responses would range from drones and Prime delivery, to fast and reliable customer service. Understandably, most wouldn’t consider giant warehouses to be the future of the largest online retailer in the world. However, while BJs is primarily located in the eastern United States with only 214 warehouses, it would actually be a very strategic move from Amazon to acquire this type of Brick & Mortar network. This is why:
Amazon is looking to optimize its supply chain.
It’s been made clear through these speculations that Amazon is looking to extend its supply chain and ultimately create a comfortable way for consumers to shop in warehouses close to them. In the past two years, Amazon has prioritized fast and convenient delivery. Investing in planes, shipping services, drones and trucks – Amazon has spent $3 billion in transportation shipping alone. The endgame is clear: ‘uberize’ last mile service. There really is no better way to streamline this process than by occupying more warehouses and improving the supply chain. It’s also a smart move because warehouses appeal to customers that live in close proximity. They get the same level of quality they expect from Amazon, while simultaneously reducing the cost of delivery and working with a “local” company.
Amazon is moving further into a customer-centric model.
Let’s face it – each customer is unique and has different wants and needs when it comes to what they buy and how they buy it. Consider two different groups of products that are most commonly purchased on Amazon – they can both be found in seconds and significantly contribute to the online retailer’s success.
The first set of products can be defined as ‘mainstream.’ This means items that are being bought every day and are not difficult to find – TVs, laptops, desk supplies, seltzer water or even holiday decorations. Consumers shop for these products on Amazon because they can be delivered quickly, efficiently and at competitive prices. These are Amazon’s reliably movable products, with consistent sales on a daily or weekly basis.
The second group is the ‘long-tail products.’ These could be anything from a rare book, a particular part for a car that isn’t sold at your average automotive store or a certain size shoe that isn’t commonly carried. Amazon recognizes that, by having such a wide assortment of products available in one place (in this case, online), consumers will continuously look to them for their needs because of this “one-stop-shopping” model. In fact, this model has been successful to the point of beating out Google as the first point of search for most products.
Opening up warehouses that consumers could physically shop in would add another dynamic of tailoring shopping experiences for consumer benefit. For example, if a newly re-branded Amazon warehouse is located just a mile away, a consumer would be able to pick up the exact product they need and Amazon would ensure that it’s waiting for them upon arrival. This comes with the added benefit of being able to conduct regular shopping of mainstream items while in-store, killing two birds with one stone. This is the next logical step in the quest to optimize convenience for consumers, reducing the 24-48 lead time from purchase to delivery to 10 minutes. Thinking long term, this is how Amazon will create the ideal customer-focused retail experience of the future, where shoppers will have their goods waiting for them, and they can be instantly directed to anything else without having to ask an associate or wander the aisles.
Despite having backed away from rumors of purchasing BJs, the fact the rumor mill was churning is telling in itself. Amazon is hoping to combine the Brick & Mortar and online models into one convenient location that sells just about everything, while optimizing its supply chain cost down to the last five miles. It is a pretty powerful concept, and one that showcases how Amazon is thinking ahead and disrupting traditional commerce every day. With bringing back the desire to shop in-store, Amazon also generates an opportunity to analyze consumer behaviors in a more granular fashion. When a product is returned for example, Amazon will not only understand why, they also now have the chance to provide the customer the opportunity to replace that purchase with something they may like better – potentially increasing sales converting real traffic in-store rather than only relying on online conversion. Considering that online conversion rates are at 0.08 percent and increase to eight percent in-store, there is significant opportunity for Amazon here.
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