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The retail giant will open a new outpost of 4-Star in Boston and add another Amazon Books location in Nashville, per Geekwire. Now, Amazon will operate five 4-Star stores and 19 Amazon Books stores, helping expand its proprietary retail footprint and further grow the segment outside of Whole Foods, which comprises the bulk of Amazon’s physical retail stores.
Here’s what it means: As Amazon’s online retail growth begins to slow, physical stores could hold promise for the brand.
- Amazon’s online sales growth has been lackluster over the past several quarters. In Q2 2019, the firm’s online retail sales hit $31 billion, representing 16% annual growth — the firm’s best quarter growth-wise since Q4 2017. But over much of the past year and a half, Amazon’s online retail sales growth has remained largely stagnant, hovering between 11% and 14% on a constant currency basis. This could be a result of macroeconomic changes, brand saturation, or both, but if the trend continues, it may force Amazon to look to new segments to expand.
- Because physical retail is such a large segment, there’s substantial opportunity to grow, which could make it a promising channel for Amazon. Though e-commerce is growing rapidly, physical retail still comprises nearly 90% of overall retail sales in the US. Amazon has been moving into the segment, with 4-Star, Books, and autonomous checkout solution Amazon Go, but it’s still early days: Amazon’s physical stores segment incurred just $4.3 billion in sales in Q2 2019, growing just 1% year-over-year (YoY). Expanding its push into new markets and investing in new locations could help it grab a larger share of overall retail in the US.
The bigger picture: Bolstering omnichannel retail efforts is a lucrative path to increase spending.
Consumers who shop via multiple channels tend to spend more with a given retailer, which means physical stores are a valuable exposure point for Amazon. Despite making up just 17% of the customer base, omnichannel shoppers are responsible for 34% of consumer spend, per an ICSC report that found that after spending $100 online with a retailer, consumers spend $171 in-store with the same seller in the next 30 days.
For Amazon, expanding into physical retail could allow it to capture that additional spend while offering customers the tactile experience they can’t get online and showcasing proprietary products like Kindle or Echo. It can also provide a generator for Prime subscriptions — which are slowing — because users who want discounts can sign up in-store, making the move a valuable investment to grow both its physical retail segment and overall business.
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