Amazon (AMZN) May Open "Bricks-And-Mortar" Stores

Apple (NASDAQ:AAPL) has opened scores of retail stores and by almost any measure they have been a success. Microsoft (NASDAQ:MSFT) is opening retail locations to sell its hardware and software. It is too early to tell if Redmond’s initiative will be profitable or simply a loss leader for demonstrating Windows and xbox 360s.

Word comes from the Times of London that Amazon (NASDAQ:AMZN), the world’s largest e-commerce operation, is planning to open stores in well-to-do sections of the UK. The stores will allow people to buy items on site but will also serve as locations where people can pick-up what they have bought online. Wal-Mart (NYSE:WMT) has had a similar program for more than a year.

The UK stores could be the model for Amazon store expansion in the US. Barnes & Noble (NYSE:BKS) still has a large number of profitable stores. Amazon may target areas where book and consumer electronics retail outlets do well.

Wall St. has wondered what Amazon’s next move might be. Its last major venture was the launch of the highly lauded and successful e-reader Kindle devices. Several research firms estimate that two to three million e-readers will be sold in the US over the holidays and Amazon will sell the lion’s share of those.

Amazon may be choosing a particularly good time to get into the retail store business. Many retail outlets of other companies have shut down leaving landlords without tenants. Those landlords are likely to be willing to cut favorable rental deals with a firm as large as Amazon which is certain to pay its bills. Retail spending in the US is also posting a tiny rebound, at least according to early holiday spending figures. Amazon can afford to gamble that the trend will continue as the recession ends and the unemployment picture improves.

Amazon certainly as the balance sheet to enter the store business and wait out a weak economy. But, for every retail success of a company with a good brand there is a failure. It is worth remembering that Sharper Image was one of the hottest retailers both with stores and with catalogues and e-commerce operations. It is now bankrupt.

A strong brand is only one element of  retail success.

Douglas A. McIntyre

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