While many physical retailers are closing down underperforming physical stores, the rumors about Amazon’s upcoming expansion into physical stores are causing a stir in the retail industry. Thanks to General Growth Properties CEO Sandeep Mathrani, we hear that Amazon has a goal of opening 300 to 400 physical book stores. While that rumor was walked back quickly, it does not seem at all improbable.
Some observers are calling this a publicity stunt, simply a way for Amazon to get some attention.
Not true. Amazon has always had a stealth mindset, and does not like to court publicity for half-baked ideas. Instead, one can make the case that Amazon is about to upend the entire retail industry. What it has accomplished so far is nothing compared to what’s coming next. Here’s why: Amazon is using the intelligence gleaned from its digital operations to truly understand the customer – what they buy, how they buy and when they buy. This leads to a strategic principle that is a becoming a growing part of business strategy: use digital intelligence to drive business strategy.
Amazon’s using the online customer’s buying patterns to predict physical buying patterns. Couple this with the relentless use of analytics, automation, and yes, robots to optimize operations for efficiency, and you get a feeling for the retail “shock and awe” that is coming.
Here are some facts gleaned from the news:
- Amazon.com opened a physical bookstore in November of 2015. The key takeaway here is that Amazon uses demand data from the online store to stock only the most popular and profitable products – the ones most likely to sell.
- A spate of highly specialized job postings suggests that Amazon is planning top expand its brick-and-mortar bookstore business.
- The Amazon drone delivery service, Prime Air, is waiting in the wings (if you’re a sceptic, see how drone delivery works in China)
- Amazon has filed a patent application for a new type of retail store:
- Amazon employs KIVA – a robot company – to replace humans in its warehouses
- Amazon has patented a 3-D printing truck delivery system
- Increasingly, product searches start on Amazon, not Google
- Amazon is already a leader at replenishment services, using the Internet of Things
- Amazon has been accused of creating a “cultural monopoly“
- Amazon’s Alexa – a Smart Home assistant – won the Super Bowl:
Putting these pieces together, we can use our imaginations to visualize a retail domination strategy that hasn’t been seen since Sam Walton built Walmart:
Amazon will change the way we buy by creating at least five “ways to shop”:
- Online shopping: what is in place today at Amazon.com with the added one-hour delivery promise (via drones, 3-D printing trucks, and self-driving delivery vans)
- Experiential shopping: the physical brick-and-mortar store that will replace existing retailers (be very afraid Best Buy, Macy’s, Barnes and Noble, Safeway, Staples, and Walgreens!)
- Convenience shopping: Big Box Mega Amazon will give Costco and Walmart nightmares
- Replenishment shopping: using DASH, Amazon is ready to put the Internet-of-Things at the consumers fingertips
- D-I-Y shopping: where consumers create, sell and distribute their own products through Amazon (the next step after CreateSpace is consumer co-creation and manufacturing)
For those of us who worry about financial models, here’s what you can expect. Amazon will transform physical retail in exactly the same way it transformed the IT Data Center. In the the world of digital infrastructure management, Amazon is the model for eliminating waste (reducing costs) and improving customer satisfaction simultaneously in the Data Center:
The result? Optimization of demand and delivery – where the Amazon brick-and-mortar stores sell what you want to buy when you need it. Capacity matches demand. The holy grail of supply chain optimization. And before we say this can’t happen, let’s remind ourselves that this is Amazon we’re talking about.
Christian Sarkar is the editor of this site, a writer, consultant, artist, and entrepreneur.