Online retailing colossus Amazon.com, Inc. (AMZN) raised some eyebrows when it made a sharp departure from its internet-based strategy by buying grocery chain Whole Foods and by opening up its own brick-and-mortar stores. Now Amazon has made a U-turn, announcing that it is shuttering all its Pop Up, Amazon Books, and 4-star stores as a result of unexpectedly slow sales growth.
The announcement covers 68 stores across the U.S. and U.K., with closure dates to vary by location. Amazon would not reveal how many employees will be affected, but the company said that it will assist those people in finding other jobs roles in the company. Severance packages will be offered to store employees who choose to leave Amazon.
- Amazon announced that it is shuttering all its Pop Up, Amazon Books, and 4-star stores, with closure dates to vary by location.
- The retreat from physical retailing follows a quarterly report showing Amazon's slowest growth since 2001 and the weakest stock price performance among big tech companies.
- Despite the announced closures, Amazon "remains committed" to developing long-term physical retail concepts and technologies.
Disappointing Brick-and-Mortar Sales
Amazon's physical stores, which include grocery chains Whole Foods Market and Amazon Fresh, reported lower sales in 2021 than in 2018. Amazon Fresh began as a delivery service operating out of Whole Foods locations before adding 25 physical locations of its own, mainly in California and Illinois.
Amazon's revenue from physical stores was only 3% of its total of $137 billion in the last quarter, itself largely due to sales at Whole Foods. Overall, Amazon's sales growth from physical stores often has failed to keep pace with growth in its other businesses.
'Retail Is Hard'
"Retail is hard, and they're discovering that," observed Michael Pachter, an analyst at Wedbush Securities. He believes that it was a strategic mistake for Amazon to venture into physical book stores. He also thinks that Andy Jassy, Amazon's new CEO, probably made this decision after reviewing the company's numerous businesses since taking the top job in July 2021.
Amazon opened its first physical book store in Seattle in 2015. This surprised many observers, given that Amazon began as an online bookseller. Moreover, its rise to dominance in this field was a key factor that pushed established brick-and-mortar competitors such as Borders to bankruptcy.
Amazon's strategy was to reach more shoppers in more locales, while also capitalizing on its technical savvy. Its bookstores, for example, would stock their shelves based on intelligence gathered from its vast trove of data on what people were reading, as well as the reviews that they posted on Amazon's website.
The retail stores being closed by Amazon offer, among other things, branded electronics such as Fire tablets and Echo smart speakers. The 4-star stores were designed to feature top-selling products from Amazon's online store. Amazon's announced retreat from physical retailing, meanwhile, comes on the heels of a quarterly report showing its slowest growth since 2001 and stock price performance that was the worst among other big tech companies.
Stock Market Laggard
Shares of Amazon were up by just 2.4% in 2021, far behind the other four so-called FAANG stocks. Apple Inc. (AAPL) was up by 34%, Facebook parent Meta Platforms, Inc. (FB) rose 23%, Netflix, Inc. (NFLX) rose 11%, and Google parent Alphabet Inc. (GOOGL) surged by 65%. Another tech giant, FAAMG member Microsoft Corporation (MSFT), was up by 51% in 2021. The tech-heavy Nasdaq Composite Index gained 21%.
Amazon 'Remains Committed' to Physical Retail
Despite the announced closures, a spokesperson said that Amazon "remains committed" to developing long-term physical retail concepts and technologies, citing Amazon Style, its the first venture into physical clothing stores. Amazon also said that it would continue to focus on its Amazon Fresh and Whole Foods Market grocery chains, as well as the Amazon Go convenience stores, and that the company remains committed to its Just Walk Out technology for physical stores without cashiers.
Amazon also has introduced other experimental retail technologies like Amazon One, in which users scan a palm of their hands to pay for items, and Dash Carts, a shopping cart equipped with sensors that lets shoppers check out without a cashier. Amazon's physical stores division is headed by Dilip Kumar, a former "shadow" of Amazon founder Jeff Bezos.