History Repeats Itself: Does Amazon act like Sears of the 1920s?

JC Penny and Sears have recently filed for protection under the Bankruptcy Code and are expected to close dozens of branches across the USA. Meanwhile, in the last few days, it has been reported that the large US real estate mall operator, Simon Property Group, has been in talks with Amazon to lease spaces vacated by struggling department stores. As reported, Amazon wishes to convert some of the spaces into fulfillment centers.

Amazon’s move is not at all surprising. If one reviews history, it is exactly the move made by the retailer Sears in the past. Sears started operating at the end of the 19th century, selling jewelry and watches through catalogs, which they sold to the customer by mail-order services (mail-order business). Over the years, Sears also sold other merchandise at low prices and provided a solution to consumers living in areas less accessible to physical shops and retail outlets. Over time, the development of the automobile industry made the retail stores in urban centers more accessible to consumers living in the suburbs in rural areas. Sears took advantage of the opportunity and opened its first physical store in Chicago in 1925, and subsequently continued opening more and more physical stores until physical sales surpassed mail orders. Sears continued with the catalog activity including online catalogs alongside the physical shops.

So what similarities should we draw between Amazon and Sears? Just as Sears understood the importance of physical presence together with other sales and marketing channels, Amazon has apparently reached the same conclusions. Amazon understands the critical importance of “last mile” distribution and being near to its customers, whether to save shipment costs, save time, or better inventory efficiency. All of these lead to higher profits and naturally improve the customer’s service experience. Therefore, it is reasonable to assume that Amazon’s fulfillment centers will also ultimately be converted into shops that can be visited to purchase products – if locations are central and in-store pickup saves distribution costs than it is logical to enable customers to shop at their neighborhood distribution center. The selection of their locations will surely be a function of two important elements: accessibility and proximity to the customer base. In other words, the “last-mile” distribution center shops will have to be both near/in population centers and accessible. The acquisition of Whole Foods by Amazon in 2017 was evidence of the necessity and importance of being in central locations, in accessible physical shops with demographics that match those of the service offered.

In conclusion, both in the past and present, it is apparent that retailers that think long-term understand the importance of the prevalence of both a strong physical presence of their brands along with their digital/at home shopping strategy, which together enhance their brand value. Retailers that know how to build a sustainable business model that combines online and offline (as we call them, “omnichannel retailers”) will survive and remain relevant, prove to be more durable in recessionary times, and benefit from higher growth (of their business).