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Amazon, Big Box Edition

In some quarters, the news that Amazon is exploring opening brick-and-mortar stores has the same gallows irony as Charles Manson announcing his intention to become a victims’ rights activist. Amazon led the online army that decimated physical retailers, cutting a swath of destruction through independent booksellers, driving Borders and Waldenbooks into bankruptcy, leaving Barnes & Noble hanging by a thread, and generally calling the whole pre-digital paradigm of shopping into question. Their biggest growth product lines of the last few years—e-books, music, apps, streaming media, and cloud services—don’t even have corporeal form.

And now Amazon is thinking about building in the ruins.

Once you get past the issues of mission-whiplash, though, the move makes sense. Amazon’s online model has indeed transformed retail, and Amazon’s championing of the e-book has transformed publishing, but its success has exposed gaps in the new supply model that are hard to fill, even by a company with the unmatched e-commerce sophistication of Amazon.

Here are four ways physical stores could help Amazon’s long-term strategy.

1.       It’s hard to build brands online. Amazon works fine as a sales channel for books, authors, and publishers with established brands. But now that Amazon is going into the publishing business and serving as a self-publishing platform for more aspiring unknowns, having a shelf-presence is more important to establish new brands with customers. Considering that established retailers are making noises about boycotting Amazon’s products, the only way to ensure shelf space is to own the shelves. 

2.       Upselling and cross-selling is better in person. Amazon has long been at the forefront of the dark sciences of recommendation engineering and crowdsourced buzz generation. But it turns out those are imperfect substitutes for certain kinds of in-person transactions that occur between customers and knowledgeable sales staff in specialty retail stores. You can bet that customer service at any Amazon retail locations will be performed by walking cyborgs: sales associates wired in to the customer’s comprehensive, all-knowing Amazon profile, so they can combine sales intuition and real-time data to maximum effect. 

3.       Virtual products need a better retail experience. No one has quite figured out what a real-world showroom for virtual products looks like. Apple stores sell hardware, brand experience, and service; you can surf the iTunes Store for apps and content once you unpack your spiffy new iPad. GameStop, Blockbuster, and the few remaining music retailers want you to walk out of the store with a disc in a bag, not ideas for what to put on your Netflix or GameFly queue. Given the profitability of selling digital product, Amazon's retail environments will likely try to encourage on-premise consumption (or at least acquisition) of virtual products, not just physical goods. We don’t quite know what that will look like yet, but I’d be surprised if Amazon doesn’t have a pretty good idea. 

4.       New synergies, new partnerships. As a Seattleite who lives right up the hill from Amazon’s new South Lake Union campus, I can’t help speculating about a potential alliance between the online bookseller and one of our other homegrown brands that’s proliferated like kudzu across the global urban landscape: Starbucks. The green mermaid’s precision-crafted café culture seems like a perfect complement to Amazon’s bottomless selection of books, tunes, magazines, comics, and videos to enjoy while you’re sipping your Grande Nonfat Mocha (light on the whipped cream). As a natural alliance between two neighbors in complementary businesses, this seems like the obvious next shoe to drop.

[Image: Flickr user Travis Wiens]

Rob Salkowitz is author of Young World Rising: How Youth, Technology and Entrepreneurship are Changing the World from the Bottom Up. His new book, Comic-Con and the Business of Pop Culture, will be published by McGraw-Hill in 2012.