Imagine a scenario where Netflix opens hundreds of physical stores around the country. These locations would let Netflix customers (and Netflix customers only) rent physical copies of films like the company’s DVDs-by-mail service, yet with the added step of getting in your car and going somewhere. This absurd idea doesn’t sound too far off from a certain Onion article, and will never happen.
Yet for Amazon — the site that exists solely to prevent you from going to a physical store — actual retail locations aren’t just a possibility. They’ve existed for a while. From bookstores to grocery stores, Amazon is slowly expanding into the physical retail market at a time when said market is in a major decline.
Today, the company opened their first of several planned locations in New York City, a major retail market. This opening signifies a turning point for the company as not just an online retailer, but one of the biggest retailers around. It is also part of the company’s drive to add new users, get existing users to spend more, and keep shoppers addicted to what Amazon has to offer.
Amazon really wants you to sign up for Amazon Prime.
Amazon’s bookstores allow customers with Amazon Prime to buy the store’s books for the same price featured on Amazon.com. Amazon is known for having heavily discounted prices — well past those at indie bookstores or even Barnes & Noble — and selling cheaper books is one way to gain the interest of avid and casual readers alike. At the same time, shoppers without Amazon Prime must pay list price for the books featured in the bookstore. That is, unless they sign up for Prime.
Amazon isn’t just segmenting shoppers in their bookstore. The soon-to-open Go grocery store and Amazon Fresh Pickup are only available to Prime subscribers. These stores will sell groceries and other items from Amazon’s Fresh grocery service at low prices, but require the $100 per year subscription fee just to get through the door.
Prime is great for the company’s bottom line. Prime members spend much more than non-members, and keeps them in the Amazon shopping ecosystem for longer. Though the company likely breaks even or loses money with the Prime subscription fee, they make that money back (and then some) through the volume of products that members buy on their site. By having Prime-only access to stores, the company creates even more incentives to pay the $100 fee and keep using their services.
Amazon is the king of retail.
Retailers like department stores and mall staples are going bankrupt or losing billions in value on the stock market, yet Amazon’s stock ($AMZN) is up 32% since the start of 2017. As their competitors struggle to stay afloat, the online retail giant is doing everything and anything to steal their customers.
For instance, the company’s new bookstores, are a way to woo customers away from Barnes & Noble, who is having trouble keeping up with Amazon’s dominance of the bookstore world. The Fresh and Go concept stores will undoubtedly cut into regional grocery chains’ bottom lines. Amazon is also making small but calculated plays in the fashion space, so seeing an Amazon clothing retailer in the near future wouldn’t be all that surprising.
Expect a ton more physical Amazon stores.
Physical retailers are in trouble, but they’re not all going to disappear any time soon. Going to the store and trying out a product before purchasing it is important to many shoppers, and Amazon knows this. While the existing stores act as a way to get consumers interested in the Prime service, they’re also a way to make more money from shoppers who are reluctant to buy online. By opening even more stores in the future — anywhere from the dozen planned book locations to a rumored couple thousand grocery stores — the company can continue to make billions online and make a significant chunk of change using their competitors’ methods.
Should you invest in Amazon?
The company’s stock is 32% more valuable than it since the beginning of the year, up 40.53% in the last year, and up 367.6% in the last five years. This means that if you bought Amazon five years ago, your investment would have more than tripled by now.
At the same time, $AMZN is an expensive buy. It’s currently valued at $996.13 as of this writing. Some analysts might argue that the stock’s growth could slow now that it’s so expensive. Others argue that it’s just begun to grow. If you side more with the latter, be sure to do your research before you think about investing in the company. You could also wait for it to go down a bit before you invest.