Amazon Gets Physical

Keith Head ShotBy Keith Riegert, Langone Managing Editor

Ahab had the whale; Odysseus the sea; Bezos the profit margin. Until last year, it looked like Amazon may never conquer its indomitable, literary-style foe. But more than two decades after the e-commerce bookseller went on line, the now-highly diversified company is finally posting positive returns. And it’s entirely no thanks to books. Which makes it ever more surprising that late last year, the e-retailer that famously helped drive Borders and physical bookstores off a cliff, opened a brand new, brick and mortar bookstore.

Then, in February, Amazon hinted that first store was just one of hundreds more to come. In this two-part series, we explore what exactly Amazon is thinking with this unexpected move; and whether, after years of integrating into every corner of book publishing, Amazon may finally have put itself in a bind it cannot undo.

The Cheetah among the Bookish, Slow Moving Gazelle

Once heralded as publishing’s savior from the moodiness of chain bookstores, Amazon has proven itself an aggressive player in all areas of publishing. The company, which pioneered free-shipping, Mercury-fast delivery and mindless, one click purchasing, has now established its own publishing houses, nearly singlehandedly created and dictated the market for e-books and turned “self publishing” from a path-of-final submission for dejected authors into a viable, respectable (and sometimes preferred) alternative to traditional publishing models. Amazon’s position in publishing is now that of Goliath; and if you’re a book publisher in the United States, Amazon’s move into the physical bookselling market should be, well, unnerving.Barnes and Noble-Amazon.JPGBarnes & Noble, which celebrates its 100th birthday in 2017, is about to get a brand new brick and mortar competitor with a very familiar name—Amazon

From The E-Bookshop to The Everything Store

What’s puzzling about Amazon’s move into physical bookstores is that while book publishers may now rely heavily on Amazon for survival, the dependency is not mutual. Random House’s blockbuster merger with Penguin in 2013 may have been received as a seismic power-move aimed at countering Amazon’s bargaining power—but the numbers show it was more akin to two ants joining forces to do battle with the elephant that was now wandering away. After all, according to Trefis.com, just 11.7% of Amazon’s estimated current $288 billion market cap is due to books, DVDs and music…combined. The vast majority of Amazon’s market cap now belongs to selling just about everything but books and growing, powerful cloud storage and web services.

Getting Back to Amazonian Roots Nevertheless, Amazon has, apparently, not forgotten its beginnings as an Internet-born bookseller. And the move to physical shops may actually be the smartest move they’ve made in books since the launch of Kindle. For years, Amazon has used its extensive warehouse network to compete viciously with brick and mortar bookstores by consistently underpricing them on virtually every book. But the price advantage, especially when adding in free shipping, has come at the peril of Amazon’s profit margins. It’s been nearly impossible to actually make money.

Building physical versions of the world’s biggest e-bookstore in towns and cities across the country may allow Amazon to achieve a remarkable synergy between its data-driven, innovative online store, well-built distribution network and the persistent allure for shoppers of meandering the aisles the corner bookstore. But above all else, the new brick and mortar business model won’t, necessarily, be beholden to bargain basement pricing and costly free shipping. Amazon will finally benefit from all the retail advantages its missed online: personal service; physical, tactile products; walls, floors and shelves; and that itching desire not to leave without something in a bag.

Self-Publishing gets its Spot on the Shelf Considering the solid success of other similar retailers like Blue Nile and Birchbox—companies born online that have moved to a hybrid ecommerce-retail model—it’s hard to see how a juggernaut like Amazon could fail with this retail experiment. What isn’t certain, however, is how Amazon will successfully deal with choosing the books it will put on store shelves. Having insistently fostered the self-publishing revolution through its subsidiary CreateSpace, Amazon now faces the prospect of putting questionably edited, amateur titles side-by-side with New York Times bestsellers, right at eye level.

In part two of this Amazon expedition, we’ll look at the possibility that Amazon’s position at the forefront of selfpublishing may have put Amazon in a bit of a pickle; and left the market wide open to something Amazon hasn’t had to deal with much—competition.

Find me on Twitter @KeithRiegert

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