Can Amazon replicate Apple's brick-and-mortar success?

by David Carnoy February 6, 2012 6:33 PM PST   

There are whispers that Amazon may soon be opening a physical store for its Kindle products and Amazon Exclusives.

(Credit: Sarah Tew/CNET)

There's been some chatter lately about Amazon opening its own stores out in the non-cyber world. Yes, we're talking physical, brick-and-mortar stores, the kind people can actually walk into.

This is all speculation, of course, but Jason Calacanis got the ball rolling with a post late last year entitled "Rumor: Amazon Retail Stores Coming & Predatory Pricing Channel Destruction."

That was followed last week by a story in The New York Times Bits blog speculating (and citing that Calacanis story) that Amazon might just very well be exploring opening physical stores.

"For years, there has been speculation that Amazon will open its own outlets, presumably to sell Amazon-label products," David Streitfeld wrote. "The idea seems far-fetched, but before 2001 so was the idea of Apple operating its own stores."

No sources were quoted in the Times article, not even anonymous ones, but then the Good E-reader blog claimed that it indeed had a source who said Amazon was in the process of launching a retail store--or more precisely a "test" boutique in Seattle.

The article states:

Amazon sources close to the situation have told us that the company is planning on rolling out a retail store in Seattle within the next few months. This project is a test to gauge the market and see if a chain of stores would be profitable. They intend on going with the small boutique route with the main emphasis on books from their growing line of Amazon Exclusives and selling their e-readers and tablets.

That's right, the article says that one of the reasons Amazon would be launching the physical stores would be to showcase physical books from their new publishing division, which has signed some big authors to deals and is now run by longtime publishing executive Laurence Kirshbaum. Barnes & Noble has stated that it won't sell Amazon's physical books. Books-A-Million and Canadian bookseller Indigo Books just announced that it wouldn't either.

Amazon, according to this unnamed source, was working out some of the tax implications but was looking to launch the test store by the end of this year. In the past, Amazon has argued that since it has no physical stores or warehouses in most states, it shouldn't have to collect sales taxes in those states. However, it has a complicated relationship with affiliates--and affiliate tax laws, which cash-strapped states have used to collect sales tax. But word is that Amazon is increasingly resigned to a future where it will have to collect state taxes, so why not look toward putting more warehouse (or stores) on the ground near major metro areas? Or so the speculation goes.

Amazon at your local mall?
While Amazon won't confirm or deny any of these rumors, it is worth taking a moment to consider whether it would be a good idea for Amazon to open its own physical stores.

A lot of people think it would. Some say it would be a good way for Amazon to deepen its relationship with customers and also provide both hands-on demos and customer service, much like Apple and Barnes & Noble are doing in their stores.

While I certainly think Amazon has the discipline to create a great in-store Amazon experience, its formula of creating "premium products for non-premium prices" runs counter to the Apple formula of creating premium products for premium prices--with correspondingly huge margins.

As a result, Amazon would seem to have less room for error than Apple, and while it has plenty of high-margin products to sell in the form of accessories, the rumored mix of Kindle devices and physical books doesn't seem incredibly enticing, especially when prices for Kindles are so low (that's the stuff you don't mind buying online) and only going lower.

True, Amazon has sought to become more of a lifestyle brand through its advertising (its ads have become very Apple-like in their own way), yet it's still much more about efficiency and low prices; that's what it's known for. That's why I shop at Amazon.

At the end of the day, Amazon's gotten where it has because it offers the best online shopping experience with an incredibly metrics-driven focus. Whether Jeff Bezos thinks it can bring that kind of approach to a brick-and-mortar environment, I don't know, but he certainly isn't short on ambition and judging from his presentations at Kindle events, he's the closest person we have to an heir-apparent to Steve Jobs.

That said, Amazon has been so much about defeating the competition with its online vision for buying and selling it's hard to imagine it would jump into the brick-and-mortar world without some very careful consideration. (Yes, its products are in the Best Buys and Targets of the world, but presumably it has sold a ton more Kindles by simply plastering them on the Amazon home page day in, day out, month after month).

So even if there's some truth to all this talk of Amazon stores, I think what we're really looking at is a small experiment, not a big leap.