Why Opening Stores Suddenly Makes Sense For Amazon (NASDAQ:AMZN)

  • 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.

Dana Blankenhorn Dana Blankenhorn   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
  • See Amigobulls' policy on anonymous authors who use a pseudonym
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

At Amigobulls, we prefer that our authors disclose their real names. However, due to a variety of reasons, author's may prefer otherwise. Recognizing the fact that the ideas conveyed carry greater significance, and to facilitate the dissemination of these ideas, we allow authors to use a pseudonym. However, we do collect the same of details from anonymous authors, as we do from others, like the author's real name and contact information. Of course, this information remains confidential with us, and is not displayed on the site.
Further, to protect the interests of our readers/viewers, anonymous authors are required to make the same set of disclosures as other authors. For more details, you can write to any of our in-house editors at contributions@amigobulls.com.

show more

Comments on this article and AMZN stock

user profile picture
Didn't Amazon try what you are recommending with Amazon Lockers?

They installed Lockers where customer could have their goods shipped at major stores throughout the US.

For the majority of people, home delivery is safe and preferred.

Not sure why Amazon is opening stores, but I doubt it's to reduce shipping costs.
user profile picture
There was an effort to do lockers back when Amazon was much smaller.

Some people just aren't home enough to take deliveries, especially in crowded cities.
Do share this awesome post