Why Amazon wants to open bookstores?

Amazon has announced its decision to open 400 bricks-and-mortar bookstores during the course of this year.

On the face of it, this move looks regressive since Amazon single-handedly disrupted bricks-and-mortar stores two decades back. But if you look at Amazon’s basic philosophy of being customer-centric and how customers have evolved since the time it was incorporated in 1994 to shop on multiple channels, it all ties in.

How it is in line with the firm’s focus on customers    
The company’s well-crafted mission statement articulates the reason for its existence: “to be Earth’s most customer centric company”.

So, for example, at routine internal meetings, one chair is always left vacant—it represents the customers and serves as a reminder that the team has to take decisions that favour them, not Amazon.

Here’s an example of its customer focus in action: Amazon encouraged readers to post book reviews that were published unedited on amazon.com. The ones with negative reviews did not sell. Some team members proposed that negative reviews be deleted and only positive reviews be published. After all, they argued, Amazon’s purpose is to sell books.

However, chief executive Jeff Bezos rejected the idea outright, arguing that Amazon’s purpose is not to sell books, but to help customers make up their minds on which books to buy—having both positive and negative reviews helps them do so.

Armed with this understanding, let us now evaluate its decision to open bricks-and-mortar bookstores.

Changed customer behaviour: The rise of non-linear shoppers
Between 1994 and 2016, its customers have transformed from being “linear” buyers to “non-linear” buyers and an online-only model no longer caters to this new breed.  

Three major factors have contributed to this transformation:

• launch of smartphones in 2007
• easy access to internet connectivity
• unprecedented rise of social media

Let me illustrate how this plays out: A person on Facebook sees a friend’s post singing praises of a newly bought pair of Nike shoes. She will, as a matter of routine, check out reviews posted by others. If the reviews are positive, the next time she is passing by a Nike store she will step in and try them on for size, fit, look and feel. If she likes the experience, she will pull out her smartphone and go to a price comparison site. Should the site indicate that the shoes are available on Flipkart at a cheaper price, she will place an order, opting for cash on delivery. A few days later the shoe will be delivered to her address and she will pay with cash.

The shopper moved seamlessly in a non-linear manner among various channels, from social media to review sites to bricks-and-mortar stores to price comparison site. Such non-linear shoppers are also called omni-channel shoppers and their numbers are increasing exponentially.

While reviewing its current business model, it would have become apparent to Amazon that it is not favourable to omni-channel  shoppers. If it allows this weakness to persist, it will adversely impact its competitive advantage in the long run. Hence the decision to add bricks-and-mortar stores to its business model.

Here’s another fact that would have favoured this decision: despite the hype created by online shopping, it constitutes merely 7.5% of retail sales in USA.

Why customers like stores
Bricks-and-mortar stores have a certain charm that draws customers despite the obvious advantages associated with online shopping.

The charm lies in the fact that shoppers can touch, feel and try products before they buy. At a store they can also engage in a conversation with sellers and voice their grievances to a real person.

These advantages are encoded in the DNA of a store and owners leverage it to their advantage. Let’s say a shopper spends 10 minutes in a store. During this short time, the retailer deploys a sensory marketing strategy to assault all five senses of a shopper—sight, sound, smell, sample and touch—to create pleasant memories. Result: over time it leads to loyalty towards the store.

Amazon.com is predominantly an online e-commerce platform. It does not provide shoppers an opportunity to touch or sample its products. Through the stores, it is attempting to fill this gap in its current business model.

What shape will the stores take?
Amazon seems to have invested time, energy and resources in re-imaging its customers’ journey in its stores. An Amazon bookstore is likely to have the following features:

• Product strategy: The store will carry a curated selection. It will stock books that have received favourable reader reviews or have winged their way into the bestsellers list. Books will also be selected to suit local tastes.
• Merchandising strategy: Books will be displayed with the cover facing the shoppers to tempt them to browse through them.
• Store layout: A free-flowing layout will encourage shoppers to hang out and sample the books, either in hard copy edition or on Kindles placed strategically in the store.
• Price: It is the same as online price (read: extremely attractive).
• Cross-sell / up-sell: The store will provide an opportunity to cross-sell / up-sell some of its products.
• Face-to-face interaction: It will provide Amazon with an opportunity to engage customers face-to-face. For shoppers it will provide a platform to voices their grievances in person to a real person.
• Mini fulfilment centre: People can place their order online and collect it offline at their convenience. This will help Amazon attack a weakness in its current online business model—the high cost that it incurs in shipping goods to customers. If this model succeeds, Amazon can replicate it to cut delivery cost significantly.
• Personalized experience: Amazon will leverage its expertise in data analytics to deliver personalized experience to every customer in the store. It could help build loyalty towards Amazon.

Can such a strategy work?
Will a re-imagined store prove viable for Amazon? Have other companies or brands re-imagined stores on similar lines and reaped benefits? Yes they have.

The Apple Store for instance was conceptualized by Steve Jobs not to sell Apple products but to build and strengthen relationship with customers and make them fall in love with Apple’s products. The store layout and product strategy was designed to encourage people to hang out and play with Apple products. Result: they ended up buying it. This strategy ensured that Apple retail stores chalked up highest dollar sales per square foot in the world.

I can hear many of you saying that Apple is known for pulling off gravity-defying feats, but are there examples of “normal” companies pursuing a similar retail strategy?

Not just one but many companies. Take Warby Parker, an American eyewear company conceived as an internet company. It has opened several stores so that shoppers can experience the brand’s in-store experience, as well as choose the channel they desire to shop in.

Or take Birchbox, a New York-based online monthly subscription service that sends its subscribers a box of four to five selected samples of makeup or other beauty-related products. It too has opened stores where it hopes to bring the Brichbox experience to life and therefore get its customers to hang out in the store to soak in the experience.

There are several examples of Indian online companies opening offline stores too:

• Flipkart has rolled out 20 such stores.
• Pepperfry.com, the furniture and home product e-commerce platform, has set up six stores.
• Lenskart, an eyewear e-commerce company, has set up 110 stores. The response it has received it encouraging and it plans to open another 1,000 by 2020.
• Zivame, the online lingerie firm, has opened stores and plan to open 100 stores in the next few years.
• Firstcry.com, the online kids wear firm, has opened over 130 stores.

These companies are driven by similar reasons as Amazon, plus a few more:

• They look upon this as an opportunity to let their customers window-shop.
• Many see it as an effective substitute for advertising. In a metro city, a hoarding at a prime location can cost Rs 5-6 lakh a month. At Rs 7-8 lakh, operating a store costs a little more, but a store has manifold advantages over hoarding.

The bottom line
To remain relevant, Amazon wishes to transform itself into a genuine omni-channel retailer to cater to omni-channel shoppers. Opening stores is a step in the right direction.