- Amazon is being hurt by logistical problems. It costs money to deliver packages.
- Stores could double as community centers and help desks for Amazon.
- Solve the problem and Amazon shares could go back up.
A recent report raised speculation about whether Amazon (NASDAQ:AMZN) would open hundreds of physical store locations, thus also raising speculation in the stock, especially after Re/Code published a story detailing what it claims are the company’s real plans.
That’s because there are a host of good reasons for Amazon to try something like this. While the emphasis in stories about the move is all about Amazon selling books and other media, the fact is that it is a general merchandiser with a big logistical problem on its hands.
Amazon Prime has opened a giant hole in Amazon’s results. The company charges about $1 for shipping on every $2 those customers spend. That is not a big problem if shoppers don’t overuse the service, but these are its best customers and they do. Amazon can partly make up for this by adjusting pricing algorithms (Prime customers aren’t doing much comparison shopping), but then Amazon is charging its best customers more than impulse buyers.
Amazon has been trying a lot of things to try and cut these costs. All the work on the drone delivery service is aimed at cutting delivery costs. But if Amazon were moving goods from a warehouse to a physical store, then handing packages over a counter, the problem would be solved. The back of the store would have to be a mini-warehouse (think dry cleaning), and there would have to be an assurance of traffic to keep that operation humming. Stores could also be hubs for local deliveries, on foot or on a bicycle, and open up new markets like food, even take-out deliveries, a growing niche in crowded urban centers.
Amazon could use a store to take orders anonymously, to charge cash for goods that would be delivered later. Amazon could use stores to “showroom” new goods, handing out free samples of food items the way Costco (NASDAQ:COST) and Kroger (NYSE:KR) do. Amazon could use stores as an events space, for book tours and musical performances, delivering value that will cause more people to publish their work through Amazon and building community, something Walmart (NYSE:WMT) and online retailers are accused often of taking away. Amazon could use stores to deliver real, hands-on customer service, a physical help desk that might bring in new, technophobic customers. It could even sell books – that is what Amazon's first store, in Seattle, is doing.
The point is that Amazon, with $107 billion in annual sales, is just $9 billion short of Costco. Amazon has a logistical nightmare on its hands. The realization of that, on the part of investors, is helping to send Amazon shares down – 21.4% so far this year. A retail network, operated profitably, would solve the problem and send the stock rocketing upward.