Amazon Goes Back to the Future?
Image via Unsplash.
Last week brought the surprising news that Amazon intends to open a series of department stores. Yes, department stores. Remember those things?
CNN Business reports that a number of new Amazon retail stores, starting in Ohio and California, will operate much like department stores, selling clothing, household items, electronics, and other products, and facilitating returns and exchanges. Amazon will strongly emphasize its own private-label products, and these stores will occupy smaller footprints than conventional mall anchors: closer to 30,000 square feet than 100,000.
It seems counterintuitive that the mall killer, the company that brought on-demand, two-day delivery of nearly anything under the sun to millions of people, would follow in the footsteps of its vanquished enemies by opening brick-and-mortar stores. Department stores have long been a waning presence in U.S. retail, from 14.5% market share in 1985 to 2.9% today.
But there are clear reasons why Amazon sees this as a strategic move. And those reasons are worth understanding, even if you have no love lost for Amazon itself (and I think it's safe to say that here at Strong Towns, we don't).
Image via Unsplash.
1. Online has its limits.
Some products are just an awkward fit for online retail, as anyone knows who has ordered a clothing item via Prime in two different colors and three different sizes, only to ship back the ones that aren't quite right. Customers want to try on clothes. They want to handle tactile products before committing to them. And they want to comparison shop different brands, an experience that can be overwhelming and frustrating online with the lack of curation or effective organization that characterizes Amazon's bottomless catalog.
People also just value the physical experience of shopping—perhaps especially after the pandemic, as evidenced by a recent surge in sales at traditional department-store brands such as Macy's. According to Amanda Mull in The Atlantic, "the more parts of our lives move online, the clearer it becomes that some things are just better done in person, both logistically and spiritually. Amazon’s continued creep into in-person shopping is just the most recent evidence that America is headed for a digital shakeout."
Sometimes it's the experience, not the convenience. Other times it will continue to be the convenience of having a cardboard box appear on your stoop. "The future of retail is multichannel," analyst Neil Saunders told the BBC: online and in-person shopping.
Image via Unsplash.
2. Amazon has its eye on walkable locations with a lot of pedestrian activity.
People are the indicator species of a successful place. This is the direction that retail is going in America, as shopping in person is increasingly something you do for the experience, not for the efficiency, and as walkable urban places continue a strong resurgence.
Amazon may be moving into brick-and-mortar, but they're not eyeing conventional malls or power centers. Their new department-store strategy appears to be aimed at spaces that can fit within an urban context with high foot traffic.
Image via Unsplash.
3. Amazon is likely to flex its logistics muscle here as well.
These stores are also likely to function as hubs in Amazon's vast distribution network. They can handle returns, exchanges, and same-day fulfillment, much as competitors like Target already do through their brick-and-mortar locations. In many cases, this might be practical for consumers and save Amazon a lot of money compared to delivering every purchase to the customer's door, which has always been a tenuous strategy reliant on heavy public subsidy (for roads and gasoline) and well-publicized exploitative labor practices on Amazon's part.
Sears employees in the mailroom, 1920. (Image via Flickr.)
4. As always, cities have a choice. Even if they don't think they do.
Amazon's goal is to grow and dominate, and it's going to do whatever it thinks furthers that goal. Cities, however, still get to set the terms by which the company occupies space—and they should exercise their power.
An interesting wrinkle to this story comes from historian Stephen Mihm, who writes in Bloomberg that there is a clear precedent for what Amazon is doing, but you have to go back a full century to find it. That precedent is Sears. After undercutting brick-and-mortar retailers for decades through its catalog, which allowed the retailer to market modern products to far-flung rural customers, Sears pivoted in the 1920s to large department stores in urban areas, which effectively launched or at least prefigured the modern big-box era.
Sears was responding to its time—the dawn of the automobile era—and it pioneered windowless stores and large parking lots, two hallmarks of the big box. We now know how destructive of local prosperity this model has been, particularly in the hands of later successors like Walmart and Target. Stacy Mitchell at the Institute for Local Self-Reliance has worked to document the hidden subsidies that render Walmart's retail model profitable. An analogous but not identical analysis applies to Amazon's instant-fulfillment approach.
Many city officials exhibit a sort of learned helplessness: the notion that economic development means it's their job to watch where the market is going and then do their best to facilitate that—even if it means models of retail that are a net loss for the taxpayer and don't contribute to strong places.
This wasn't true in the big-box era, it isn't true now in the waning of the big-box era, and it also won't be true of whatever plans Amazon drops on us going forward. Dominant retailers become dominant because they exploit the incentives offered by the prevailing development pattern of their era, and this is as true of Amazon's many-tentacled delivery machine as it has long been of big-box America with its oceans of parking.
Cities need to stick to playing their own long-term game: create places worth being in, and that generate enough wealth to pay their way. If Amazon can find a way to fit into that picture, then so be it.
Daniel Herriges has been a regular contributor to Strong Towns since 2015 and is a founding member of the Strong Towns movement. He is the co-author of Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis, with Charles Marohn. Daniel now works as the Policy Director at the Parking Reform Network, an organization which seeks to accelerate the reform of harmful parking policies by educating the public about these policies and serving as a connecting hub for advocates and policy makers. Daniel’s work reflects a lifelong fascination with cities and how they work. When he’s not perusing maps (for work or pleasure), he can be found exploring out-of-the-way neighborhoods on foot or bicycle. Daniel has lived in Northern California and Southwest Florida, and he now resides back in his hometown of St. Paul, Minnesota, along with his wife and two children. Daniel has a Masters in Urban and Regional Planning from the University of Minnesota.