Mall operator: Amazon to open hundreds of bookstores

[fjtorres]

The WSJ journal is quoting big mall operator as saying Amazon is planning 300-400 bookstores. Matthew Yglesias thinks it makes perfect sense:

http://www.vox.com/2016/2/2/10900082...ooks-explained

In November, Amazon opened its first bookstore, and reports from the CEO of one of America's largest shopping mall operators Tuesday afternoon suggest that the company is prepared to open several hundred new ones across the country. This prompted many to ask why the company that destroyed the physical bookstore industry would possibly want to operate a physical bookstore.

Part of the answer is that, as the announcement of the original store location said, "At Amazon Books, you can also test drive Amazon’s devices," meaning Kindles, Echos, Fire TVs, and Fire Tablets "are available for you to explore, and Amazon device experts will be on hand to answer questions and to show the products in action." Apple has physical retail stores for its digital devices, as do (albeit less successfully) Microsoft, Sony, and Samsung. Since Amazon makes Amazon-branded devices, why shouldn't it have a store too?

More interesting:

On occasion, Amazon will turn a profit either to prove to Wall Street that it can, or else because (as with AWS recently) a particular venture simply proves more lucrative than expected.

But that AWS revenue was never going to sit around in the corporate treasury or be paid out as dividends. A surge in revenue needs to be met by a surge in new expenses. Recently prestige video content (Bezos says he wants to win an Oscar) and an effort to create a two-hour delivery service called Amazon Now have been soaking up the extra money. Brick-and-mortar retail is both another potential money sink and also a possible launching pad for Amazon Now services, which are obviously going to require some kind of logistical infrastructure.

Bold mine.
The big hope B&M has been to leverage their storefronts to penetrate online sales. Amazon is (if we believe this story) going to flip it around and leverage online to penetrate B&M and save shipping costs.

So why bookstores? For the same reason Amazon.com was originally an online bookstore. You've got to start somewhere, and the book industry is a relatively soft target. Since Amazon's already basically crushed the national bookstore chains, nobody can really stop the company from getting a foot in the door of this niche.

Ultimately, it might be a total dead end. But even if the effort to establish stores fails, it will be a potentially valuable learning experience. Amazon prides itself on a value it calls "customer obsession," but lacking a physical presence means the company ends up with a somewhat limited view of what its customers look like and how they behave. A retail presence can help change that.

Bezos famously said "your margin is my opportunity". He never said that opportunity was online only. The story might possibly be true.

Much more at the source.

[Nate the great]

What I have heard from Amazon has lead me to call BS on this story:
http://the-digital-reader.com/2016/0...00-bookstores/

[fjtorres]

Originally Posted by Nate the great

What I have heard from Amazon has lead me to call BS on this story:
http://the-digital-reader.com/2016/0...00-bookstores/

If the mall operator is lying he's going to have some explaining to do.
Maybe to the SEC.

I'm not sure I buy the 300-400 number but that happens to be the likely number of stores B&N will be left with by the time their spiral is done. So if Amazon is to do B&M that is where they need to end up.

Big if, of course...

[frahse]

http://www.marketwatch.com/story/ama...res-2016-02-02

Pretty impressive!

[Apache]

Mall bookstores have been declining in numbers for years. When you figure what a mall charges for square footage and all of the add on fees they tack on, a bookstore has a hard time making a profit. Malls charge for everything. Some examples of fees charged are property taxes, CAM(common Area Maintenance), and utilities All stores except anchor stores. Anchors get to operate rent free.
Apache

[Shane R]

I'd quibble over the quantity in the report, but have no problem believing that Amazon would see some (probably limited) value in having a physical footprint.

Theirs is a huge well-known brand. A physical footprint gives them additional access to their customer base.

[fjtorres]

Originally Posted by Shane R

I'd quibble over the quantity in the report, but have no problem believing that Amazon would see some (probably limited) value in having a physical footprint.

Theirs is a huge well-known brand. A physical footprint gives them additional access to their customer base.

My thinking for a while now.
Also, their B&M business model doesn't require big stores everywhere: they could've picked up the Radio Shack leases to make it work. Regardless of the reality of the rumor, there is some money to be made stocking bestsellers, Apub titles, and quality Indies at B&M and hosting Amazon pickup lockers. And you don't need megastores for that, just a revamp of the B. Dalton mall stores.

[HarryT]

Amazon need to be careful here, I think. If they set up large numbers of B&M stores, operated in such a way that they aren't intended to make a profit, but simply to drive traffic to amazon.com, they could reasonably be accused of using a dominant market position to disadvantage small B&M stores who do need to charge higher prices in order to make a profit. That could fall foul of antitrust laws.

[Phogg]

Originally Posted by HarryT

Amazon need to be careful here, I think. If they set up large numbers of B&M stores, operated in such a way that they aren't intended to make a profit, but simply to drive traffic to amazon.com, they could reasonably be accused of using a dominant market position to disadvantage small B&M stores who do need to charge higher prices in order to make a profit. That could fall foul of antitrust laws.

They could open up just such stores and make a Profit.
But it's easier to do if they aren't in malls.

If they opened stores in resort areas where people go for extended stays but don't have a regular postal address their stores could do well. Order almost anything and get it in a two or three days
Amazon doesn't just work at offering the biggest selection, they are innovating ever faster and more reliable delivery. They are developing their own delivery drones.

So what if they had little stores in fashionable ski resort towns or in remote places like Bora Bora that were nestled in among the fancy coffee shops and the gourmet restaurants?

[Shane R]

Originally Posted by fjtorres

My thinking for a while now.
Also, their B&M business model doesn't require big stores everywhere: they could've picked up the Radio Shack leases to make it work. Regardless of the reality of the rumor, there is some money to be made stocking bestsellers, Apub titles, and quality Indies at B&M and hosting Amazon pickup lockers. And you don't need megastores for that, just a revamp of the B. Dalton mall stores.

Starbucks lets you order from your phone, walk into the store, go to the bar and pick up your drink and walk back out without standing in line to pay.

What if Amazon allows you to walk into a store, flex the capacitive jingle-bit differentiator on the Amazon or Kindle app on your smartphone, pick up a book (or other) off the shelf and walk out with it without ever standing in line at a register? I think that'd be popular.

[Dulin's Books]

i've been thinking for awhile that Amazon ought to buy Sears. Make the retail space smaller for books and devices etc and use the larger space for either customer pick up or quick shipping of stuff like with this 'Amazon Now'

[Cinisajoy]

Originally Posted by Dulin's Books

i've been thinking for awhile that Amazon ought to buy Sears. Make the retail space smaller for books and devices etc and use the larger space for either customer pick up or quick shipping of stuff like with this 'Amazon Now'

Amazon cannot buy Sears. Sears was bought by Kmart a couple of years ago or a bit longer.
This is why Craftsman is now not the only tool brand they sell.

[Nate the great]

Originally Posted by HarryT

Amazon need to be careful here, I think. If they set up large numbers of B&M stores, operated in such a way that they aren't intended to make a profit, but simply to drive traffic to amazon.com, they could reasonably be accused of using a dominant market position to disadvantage small B&M stores who do need to charge higher prices in order to make a profit. That could fall foul of antitrust laws.

And even if Amazon operates the stores at a profit, they will still be accused of doing just that.

So it might be better not to open all those stores in the first place.

[fjtorres]

Originally Posted by HarryT

Amazon need to be careful here, I think. If they set up large numbers of B&M stores, operated in such a way that they aren't intended to make a profit, but simply to drive traffic to amazon.com, they could reasonably be accused of using a dominant market position to disadvantage small B&M stores who do need to charge higher prices in order to make a profit. That could fall foul of antitrust laws.

What Amazon needs to do is not send out (much less keep) any emails indicating they have *no intention* of making a profit. Given their proven (and validated) operational model of playing the long game and willingness to stay in low margin businesses proving intent (rather than bad luck/poor judgment/external forces) would be very hard absent a smoking gun like the arsenal the feds found when investigating the price fix six.

New businesses routinely incur losses during ramp up, after all, so *if* Amazon intended to retaliate against the BPHs by killing B&N (the instigator of the Apub boycott and the BPHs' biggest supporter) all they have to do is leave a paper trail showing "unmet expectations" of profit targets.

The problem with the "Amazon doesn't want to make a profit" meme is that Amazon does make a profit. Constantly and steadily, day after day. And, more damning to the ADSers in publishing; they have always made a profit selling ebooks. Documented by the feds, no less. The meme is born out of a lack of understanding of modern business practices in general and venture capital firms in particular.

Amazon is a very strange creature in the world of business but it isn't totally unique. It is, however, a new evolution of the old style conglomerate. Try this:

People keep pretending that Amazon is a book retailer with some minor interests in the back room when the reality is that Amazon, strictly speaking, isn't a retailer at all. Amazon is best understood as an emerging Japanese-style keiretsu more akin to Mitsubishi or Samsung or GE.

Modern businesses have two primary ways of returning value to their shareholders: dividends or via stock price. And the most common way to drive up stock value is to report profits regularly. But it is not the only way. Venture capital businesses (and real estate developers, btw) operate by investing into new projects and business and growing them into viability and selling them as soon as they become independently viable. They then reward their owners from the proceeds.

Conglomerates, on the other hand, use the profits from mature, profitable businesses to buy up small, newer, or distressed businesses and add to the stock value by expanding their holdings into new areas.

Keiretsus, like Amazon, (mostly) tend to invest their profits into developing new businesses internally. Which means that very often revenue goes out as soon as it comes in and what gets reported as "net profit" is simply what doesn't get spent during the reporting period. (The main difference between Amazon and the classic Keiretsu is that all the components in Amazon's web of interlocking businesses are totally owned by the same company.)

http://www.economist.com/node/14299720

If you look at Amazon's entire portfolio of companies, retailing is only part of the picture and book retailing only a small part of that. Retailing provided the funding for their logistics network, which serves more than just Amazon, LLC, and their IT hosting services business and those two in turn are now providing the funding for Amazon's media and gadget businesses. What most of their businesses have in common is distribution and service.

B&M bookstores are just as likely a new business for Amazon as streaming media, running university bookstores, groceries, or package delivery; they have the back end distribution infrastructure already in place so their investment effort will be much lower than it would be for somebody else starting from scratch.

As for the profitability of the rumored bookstore chain, if you think of Amazon as primarily a book distributor (since they deal directly with publishers big and small) and they *do* sell to resellers as well as hosting them, it can be argued that their primary competitors are Ingram and Baker and Taylor, not bookstores.

In other words, Amazon.com can be plausibly seen as an outlet store rather than a straight retailer. And, well, there is long standing precedent on both sides of the atlantic for distributors and manufacturers running outlet stores.

For all the posturing by the ABA and AU and whatnot, if they really thought Amazon is violating antitrust law they would have already sued. In the 90's that is exactly what they did. Twice. Won one, lost one.

So no, I don't see where Amazon runs much legal risk with their rumored stores regardless of how profitable they might be in the near term.

And they are still a rumor, as Nate pointed out.

[fjtorres]

Originally Posted by Nate the great

And even if Amazon operates the stores at a profit, they will still be accused of doing just that.

So it might be better not to open all those stores in the first place.

Only if they know there are enough politicians bought and paid for for a Microsoft style lynching party.

By the letter of the law they are well within their rights to open them.

If anything, all the antitrust whining might actually force Bezos' hand. You don't get where he is without a strong ego so he might just announce the new chain and then preemptively sue seeking a declarative judgment just to shut up the ADSers, instead of letting them bully him out of a business.