Taking Apple’s Lead, Amazon Considers Getting Physical

Following in the footsteps of Apple's retail success, the e-commerce giant eyes its own brick-and-mortar footprint.

26 Nov 2014   Christian Camerota

It may seem strange for a company with a penchant for disrupting brick-and-mortar businesses to start launching its own physical locations. But Amazon is toying with the strategy ahead of the holiday season.

The company has previously deployed and retreated from similar tactics, but the Wall Street Journal reported earlier this fall on Amazon's plan to open a permanent location in New York City*. Harvard Business School associate professor Juan Alcacer believes Apple's success with its ubiquitous retail stores may have laid the groundwork for Amazon to find similar success with its own retail footprint.

Below, he unpacks that success and what it could mean for Amazon’s future plans.

Build-Your-Own Advertising

Apple’s storefronts are chic, glowing technological hubs, filled with carefully controlled, on-brand music and images and tech-savvy staff. In short, they create an immersive consumer experience that showcases Apple’s offerings, far beyond what even the largest ad campaign might be capable of.

“We take it for granted now that you can go and touch a cellphone or a tablet before buying it,” Alcacer says. “But that idea wasn’t around before Apple.”

In that way, the company helped reinvent what physical locations could be and what they could achieve for brands and bottom lines alike, transforming them into powerful, self-controlled advertising mechanisms. Now, Amazon’s may be intent on challenging Apple’s footprint to grab mindshare during the prime holiday spending season.

Educating Consumers

What better way to bring customers fully into a product ecosystem than to have well-trained employees conduct the tour? Apple’s storefronts allow customers direct interaction to their technology, while the Genius Bar deepens their understanding of it and allows for further product recommendations. It also serves as a first line of customer service, personalizing the brand.

“The idea of the Genius Bar is very powerful,” Alcacer says. “My mother-in-law, for example, was not well-versed in technology. My family gave her a few Apple products, and now she goes to the Genius Bar all the time. That concept opened up a demand, a customer segment that would never have been there if Apple didn’t have that hand-holding exercise.”

With that precedent set, Amazon’s real estate bid would make further sense, given their desire to promote their own Kindle and Fire Phone products to a public not yet entirely versed in their merits.

A Face to the Company Name

Today, there is an entire generation that has grown up doing most of their shopping online. But there are many more customers for whom a physical location is both an expectation and a comfort. Companies like Apple, Macy’s, and Anthropologie all do brisk business online, yet still allow customers to see things in person and make exchanges at their retail stores, an option that personifies the shopping experience and sets their older customers more at ease.

“The process of returning online is not easy,” Alcacer points out. “Paying for shipping, printing labels-- extra things like that are not convenient, not to mention the environmental consequences of buying something small and having it come stuffed in a big box with tons of plastic. Add all these issues together, and there is a very strong case for trying to give customers more direct access.”

Amazon’s Prime membership allows for minimal shipping costs and even next-day delivery. But adding physical locations to their online storefront may allow them to serve customers for whom overnight just isn’t soon enough, while easing the burden of returns. Alcacer points to the success of the Home Retail Group in the United Kingdom as an example of how a business based entirely on facilitating returns for an online retailer (in this case, eBay) can have huge success.

Creating Added Value

According to a study published earlier this year, Apple boasts by far the highest average sales per square foot of any retailer in the United States. The high price points of their products help, but what also allows them to extract so much value from their locations is their ability to cross-sell other products consumers didn’t know they wanted.

“When you go to a store, you buy more,” Alcacer says. “It’s that simple. You’re exposed to more items. Amazon has done a good job of trying to replicate that suggestive experience online, but it’s not quite the same. You can’t replace how effective seeing new products in person can be. Just think about the checkout aisles in the supermarket and how good those candy bars look.”

Alcacer points to IKEA as another retailer that has had great success with cross- and up-selling its customers at its physical locations. Though the Swedish company is perfectly positioned (because of its flat packaging) to rely completely on its online sales, it has generated tremendous value by making its physical locations into actual destinations its customers seek out. Beyond cafeterias and playrooms, IKEA offers a wider range of products in its retail stores than online, further driving customers to where the company knows it can generate the most value.

Getting customers into its retail locations, whether for returns or for window-shopping, would allow Amazon to similarly expose a new customer base to its technological offerings.

Will it Work?

While Amazon’s proprietary product offerings are currently limited to the Kindle and the Fire Phone, establishing brick-and-mortar locations could allow them to expand those offerings by combining the effects of advertising, cross-selling, and product education all at once, as Apple and others have done. Will the strategy pay off, however?

“Amazon doesn’t have that many products,” Alcacer explains. “They’re intermediaries. They’ve tried pop-up stores and product line expansion a few different ways before and they haven’t quite found the right mix yet. But this could be a way for them to test the market again in a different way. And you can also think about it as a way for them to diversify in preparation for Alibaba’s entry into the U.S. marketplace, which will make online retail a crowded space very quickly.”

Juan Alcacer is an expert in corporate strategy and international business, and his current research focuses on the effect of competition on the location decisions of multinational corporations. He teaches the second-year elective course "Competing Globally."

*Following this piece's publication, it has since been reported that though Amazon retains ownership of the New York City storefront, it will not be opening a retail location in the space in 2014.


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