Amazon’s Surprise Store Closings Are Much Ado About Nothing. Here’s Why.
Amazon’s announcement that it was closing all of its Amazon Books, Amazon 4-Star and Amazon pop-up stores seemed to catch much of the retail world unawares. But while the timing might have been a bit curious, the company’s decision to re-focus its energies elsewhere really shouldn’t come as much of a surprise.
We’re on a road to nowhere.
Amazon Books was launched in 2015, and while one can appreciate the irony of the company launching its first brick-and-mortar foray with a format it largely decimated years earlier, seven years later its store count is not even 5% of Barnes & Noble’s . Clearly the concept failed to gain much traction.
Amazon 4-Star has always been a concept in search of a purpose. Aside from the shoddy execution, the merchandise strategy is what a former boss of mine calls “ a dog’s breakfast.” While a bit larger by store count than Amazon Books, 4-star is far from remarkable, hasn’t moved the dial and won’t be missed by many.
Amazon pop ups have been somewhat interesting experiments, but I doubt anyone thought they were going to amount to anything material. Stated differently: so what, who cares?
Oh Lord, please don’t let me be misunderstood.
Trying to make sense of what Amazon does often requires us to suspend our beliefs and judgements about typical retailer behaviors.
First and foremost, Amazon is deeply committed to a culture of experimentation. So while some of their experiments are rather sizable and they sometimes seem to stick with them well beyond their expiration dates, we shouldn’t assume that what they see as “test & learn” is pointing to eventual “success & scale.”
Developing and sustaining the innovation habit means trying a lot of stuff. It also requires “failing better”-decisively cutting your losses, gleaning relevant learnings and moving on. Indeed, quitting is underrated.
Second, Amazon isn’t a retailer in the traditional sense and we get a few things wrong when we try to dissect what success looks like for them. Traditional retailers might focus on a physical concept’s sales per square foot, comparable store growth and 4-wall profit margin.
In Amazon’s case, these may have some relevance, but increased throughput through its supply chain, contribution to average order value, enhancement of customer lifetime value across its various consumer-facing product lines, and the ability to grow its massively profitable advertising business are ultimately more important. Cast in this light, it’s easy to see that the soon to be shuttered formats weren’t going to spin the flywheel.
Let’s get physical, physical.
My suggestion a few years back (which I doubled down on last year in my book) that Amazon’s future would be increasingly tied to brick-and-mortar success was met with a fair amount of push-back.
But Amazon clearly understands that one has to fish where the fish are. And when it comes to groceries, fashion apparel and the convenience store sector (all huge businesses where Amazon is significantly under-penetrated), it’s hard to imagine how they move the overall revenue dial and get the flywheel a-spinnin’ without focusing their attention on building out a large fleet of physical stores.
Closing 68 stores ultimately doesn’t mean much one way or another, as Amazon clearly has the organizational and financial capacity to do a lot of things simultaneously.
Amazon will continue to try a lot of stuff. Early iterations of their experiments often don’t tell us much about where they are likely to end up. The best advice is to open our aperture on what defines success for them and keep our eyes on the prize(s).
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