Amazon pop up stores and retail

I saw this at a mall close by last weekend. I’d read about Amazon opening up pop up stores in a couple of locations but I hadn’t seen one myself.

Amazon Pop up

The question in the mind of anyone who is interested in Amazon is – is this a sign of Amazon’s commitment to physical retail? My hunch is that it isn’t clear anyone, including Jeff Bezos, knows for sure. Amazon’s growth has been nothing short of stunning. However, of late, that growth, especially in retail, has slowed. And, it is clear that the retail behemoth is looking for ways to continue accelerating the growth. However, online retail as a percentage of physical retail has been hovering at the 10% mark for a couple of years now – this means 9/10 retail purchases are still made offline. And, Amazon definitely wants in. Or, does it?

The downside for Amazon is that it’ll lose a significant part of its cost efficiency if it takes the plunge into retail. But, on the other hand, it might help Amazon make its 1 hour delivery ambitions real. It all depends on how retail shakes out.

Retail, in the past, was pretty much physical. Aside from a few niche services that allowed you to call and order, you had to show up at a store and buy things. Thanks to the internet, we saw players like Amazon run e-commerce stores that did not have a retail presence. Over time, 10% of shopping in North America has shifted to e-commerce. This proportion will undoubtedly increase, but, it isn’t clear by how much. There are, after all, many who actually enjoy the physical shopping experience. In the last few years, Europe, and more recently the US, has experienced a rise of the hybrid experience – order online and pick up at store. If retail stores still stock a reasonable selection, this has a best-of-both-worlds effect as it enables shoppers to save time on the essentials by having them pre-ordered, packaged and ready and leaves them to enjoy the pleasure of shopping. It also saves money for the retailers as they can enjoy the savings due to scale.

All of this leads to the big question – what does retail look like in the future? I think, in 10 years, we will see –
1. 30% physical/traditional
2. 30% online
3. 40% hybrid

I don’t believe physical retail will ever go away. I just think the experience will need to be differentiated and unique so it caters to those who really enjoy the physical retail experience. It’ll also mean we’ll see physical do well in goods that are unique – e.g. clothes (think Bonobos) – and no longer need to worry about choosing a bottle of vinegar from 73 options. I think online will continue to grow but I think there are too many advantages for the hybrid model not to work.

So, if I were Amazon, I’d double down on the pop up store test. This could be key to whether they’ll thrive as a retailer. (Note: the key word is retailer. I am bullish on Amazon thriving as a company as long as Bezos is leading it)