For those of us in the retail real estate world, we’ve spent years watching retailers grow their online presence and shrink their brick and mortar footprints. While internet sales equate to only 8% of total retail sales, we’re continuing to hear about retailers scaling back their traditional retail presence in favor of growing their e-commerce business. Internet sales continue to grow and we won’t be seeing the end of this trend any time soon. However, there are a few e-commerce retailers that are heading in the opposite direction by dabbling in a more traditional retail platform, proving e-commerce nor traditional brick and mortar can stand alone. Amazon, the e-commerce giant, is beginning to substantially grow their traditional brick and mortar presence. Since they’ve previously been an e-commerce player only, they will be a group to watch as they evolve in this sector.
Amazon is the largest internet based retailer in the world, with an annual revenue of $136 billion in 2016. Amazon surpassed Wal-mart as the most valuable retailer in the Unites States by market capitalization, and as of the third quarter of 2016, was the fourth most valuable public company after Apple, Google and Microsoft. It would be an understatement to say that Amazon has perfected e-commerce sales and distribution.
Some may say that Amazon is grabbing at low-hanging fruit by choosing to enter the traditional brick and mortar platform through the grocery sector. Half of online grocery shoppers also have an Amazon Prime membership, so Amazon knows that some of its best customers are going elsewhere to do their grocery shopping. While online grocery shopping accounts for less than 2% of the overall US grocery market, online sales have been slowly chipping away at the traditional supermarket model. It’s estimated that about 6% of Americans do at least some of their grocery shopping online.
Amazon started dabbling in the grocery sector by opening their first 1,800 square foot Amazon Go concept that functions as a convenience store with no check-out lanes. Customers simply walk in the store, fill their shopping baskets and leave without having to check out. Customers tap their cellphones on a turnstile as they enter and this connects their Amazon account from the app to the store’s network. The app uses sensors and artificial intelligence to track what items the customer places in their basket, those items are then added to the customer’s virtual shopping cart. If a they pick up an item they later decide they don't want, placing it back on the shelf removes it from their cart. The customer then exits the store without checking out and their account is automatically charged. With this model, Amazon took a traditional retail platform and revolutionized the experience through the use of technology.
Amazon’s next grocery endeavor is their larger format grocery store, the first one is set to open in Seattle. Amazon is currently seeking “drug store like” retail opportunities for these 10,000 to 20,000 square foot grocery stores that will include drive-thru lanes. In the larger format store, customers place their orders online, then drive by during a specific window of time to have their groceries delivered to their cars. Customers who walk in will order from provided electronic tablets and then wait in the "retail room" for their order to be brought to them. Rumor has it Amazon is quietly reviewing sites in the Chicagoland market for up to 20 of these larger format grocery stores.
While only time will tell the true story on whether or not Amazon’s attempt at capturing a portion of this 52 billion dollar industry in the Unites States will be successful. However, it further proves that retailers will continue to work toward reinventing themselves, and capturing the customer with new and innovative experiences and technology to improve the customer experience.
Sarah Norlander | Vice President
Mid-America Asset Management, Inc.
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