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Amazon now operates seven different kinds of physical stores. Here's why

When you have $11.6 billion in annual profits, you can afford to experiment.

Ben Fox Rubin Former senior reporter
Ben Fox Rubin was a senior reporter for CNET News in Manhattan, reporting on Amazon, e-commerce and mobile payments. He previously worked as a reporter for The Wall Street Journal and got his start at newspapers in New York, Connecticut and Massachusetts.
Ben Fox Rubin
4 min read

The first Amazon Go store, located in the company's Seattle corporate headquarters.

James Martin/CNET

Four years ago, Amazon raised eyebrows when it launched its first brick-and-mortar location. Now the online retail giant runs all kinds of physical stores, from booksellers to grocery pickup locations to cashierless convenience stores. It's clear the company is still experimenting, but it can be a lot for shoppers to process.

This past week, the company opened yet another new store format, this one called Amazon Go Grocery, a tech-infused 7,700-square-foot store in Seattle that lets shoppers pick up produce and other fresh foods without having to check out with a cashier.

If you've been keeping score back home, that means Amazon is now operating seven separate store brands, and it's planning to open one more later this year. Four of these concepts are for groceries. But the only store with big numbers is one that Amazon bought: Whole Foods, with 500 locations. The rest have about two dozen or fewer.

Now that Amazon is one step closer to a baker's dozen of store formats, it's worth taking a second to ask if there's some brilliant strategy hiding under this grab bag of store ideas. If there is, few people have been able to figure it out.

"You're throwing a lot of stuff against the wall and it's not sticking. That's what all this is telling me," Sucharita Kodali, an e-commerce analyst for Forrester, said about all these store concepts.

She added that Amazon is a "master of media," able to garner lots of news stories for every new store opening, but it has yet to prove any of these new concepts is successful or can help grow its business.

Amazon declined to comment for this story.

What's in store for Amazon

What is clear is that all this work points to Amazon's increased interest in brick-and-mortar retail, a market with huge potential for the company. Even though Amazon is the biggest e-commerce merchant in the US, online sales account for just 11% of all retail, so expanding into physical stores is a way for it to maintain its healthy growth. But after years of rumors that Amazon was on the cusp of storming the physical retail world with hundreds or thousands of new stores, the company is instead taking a much slower approach, building out a handful of concepts and not seeming to settle on any particular idea just yet.

There's greater risk here, too, since Amazon is expanding into physical retail during the so-called retail apocalypse, with US stores closing by the thousands. It ends up more people are shopping online these days, and a big reason for that is -- Amazon.

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In addition to Amazon Go Grocery (1 store), the company operates Amazon Go cashierless convenience stores (25 stores, 1 coming soon), Amazon Pop Up themed kiosks (5 spots, 1 coming soon), Amazon Books bookstores (21 stores, 2 coming soon), Amazon 4-star general merchandise stores (11 stores, 10 coming soon), Amazon Fresh Pickup grocery pickup locations (2 stores), Whole Foods (500 stores) and an Amazon-branded grocery store planned for Los Angeles. It also shuttered its 87 Amazon mall kiosks last year.

Andrew Lipsman, a retail analyst for eMarketer, said the strategy here is a typical one for Amazon. He said Amazon is experimenting with a lot of different ideas to see what works. It's done this with its line of Echo smart speakers and its delivery methods. When you pulled in $11.6 billions in profits last year, why not do it with stores too?

Now that it's built out a handful of store ideas, Amazon is likely to winnow those down to the ones it's found to be the most successful, Lipsman said. That suggests the brands it's been slow to expand won't survive or will stay tiny. Those include Amazon Books, with 21 stores opened over four years, and Amazon Fresh Pickup, with two locations.

The brighter stars in the lineup could be Amazon Go, with 25 stores opened in just two years, and Amazon 4-star, with 11 stores opened in a year and a half.

Kodali noted that Amazon's annual sales reached $280.5 billion this past year, while its small-format Amazon Go and Amazon Books stores likely only generate several million dollars a year each. She argued that it would be better for the company to aim for bigger whales, since even 10 or 20 times more Go stores won't move the needle for such a huge company.

While Lipsman agreed with that dollars-and-cents assessment, he sees the stores more as testbeds for new ideas and places where Amazon can collect precious consumer shopping data it can use for its main online stores and growing advertising business.

Plus, he said, having these stores offers another facet of Amazon's ecosystem, helping build customer loyalty and encouraging them to shop more with the e-retailer. It's the same reason why the company sells its devices at low prices -- if you own a Fire TV stick or Echo speaker, you're more likely to shop on Amazon and become an Amazon Prime member.

The fact that Amazon developed four different grocery ideas points to its huge interest in that area, Lipsman said, since it will help the company expand in online grocery delivery and click-and-collect groceries.

But, hey, even if these stores all turn out to be a bust, it won't harm the company, he said. "Amazon can afford to experiment and spin up a few stores that don't pan out."

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