Amazon, king of online retail, can’t seem to make its physical stores work

Amazon Go stores were launched to develop technology that speeds up the buying process while saving on labor costs. (AP)
Amazon Go stores were launched to develop technology that speeds up the buying process while saving on labor costs. (AP)

Summary

The e-commerce giant is closing more of its convenience stores. ‘I don’t think they really understand retail,’ a consultant said.

Amazon.com, the largest e-commerce retailer in the U.S., is stumbling in its efforts to compete in the bricks-and-mortar world.

The company in 2018 launched the Amazon Go convenience store, where customers can grab a latte, bagel or turkey sandwich and walk out without waiting in line to pay. Amazon charges them electronically.

But with the Amazon Go store in Woodland Hills, Calif., closing this month, the retailer has shrunk its Go portfolio by about half since early 2023, to 16 stores in four states. Instead, Amazon is focusing on licensing its “Just Walk Out" technology to other retailers.

This is hardly Amazon’s only misfire in the physical-store universe. It has closed dozens of its other branded retail stores in recent years, including bookstores, fashion outlets and its “4-star" locations stocked with bestselling items from its website.

After a decadelong experiment with bricks-and-mortar stores, Amazon’s dominance online has yet to translate into a successful strategy for connecting with shoppers in the real world, retail brokers and landlords said.

“They keep testing these concepts thinking one of them is going to connect with the consumer in a big way," said Jeff Edison, chief executive of Phillips Edison & Co., a real-estate investor that owns grocery-anchored shopping centers. “But can you think of any examples where they’ve actually done the bricks-and-mortar retail well? I can’t."

Amazon Go stores were launched to develop technology that speeds up the buying process while saving on labor costs. They use cameras and sensors to track customer purchases instead of a traditional checkout counter.

But reducing the number of employees available to help customers and giving priority to credit-card payments over cash limits sales and makes the shopping experience more cumbersome, said Nick Egelanian, president of retail-advisory firm SiteWorks Retail.

“I don’t think they really understand retail," Egelanian said. “Running warehouses and shipping stuff efficiently is not the same as greeting a customer and saying, ‘May I help you?’"

An Amazon spokeswoman said Go store employees greet customers at the door, restock shelves and are available to answer questions.

While certain locations work better than others, the company continues to invest in its Go stores, including a recent redesign of its suburban store in Mill Creek, Wash., where it added more items such as made-to-order pizza. Amazon also opened a new Go store in Bellevue, Wash., last summer.

“Amazon aims to provide customers outstanding selection, value, and convenience when shopping for groceries and everyday essentials both online and in physical stores," Amazon spokeswoman Jessica Martin said.

And while Amazon is tops for online revenue, its sales at bricks-and-mortar stores, including Whole Foods Market, have grown annually since 2021 as well as in the first nine months of 2024, according to the company’s financial filings. Net sales in the third quarter of 2024 topped $5.2 billion, compared with about $61.4 billion at Amazon’s online store.

But Amazon Go competes in a crowded field. There are more than 152,000 convenience stores in the U.S., according to industry group NACS, many of which also sell coffee, alcohol and freshly prepared food.

Amazon seemed to hedge its bets on Go from the start, making sure it wasn’t locked into locations long term.

The company negotiated hard for short-term leases or those with early-exit provisions, said Ed Coury, senior managing director at retail-advisory firm RCS Real Estate Advisors, who worked on a deal to open a 4-Star location at the Westfield Topanga mall in California. He calls that a “risk averse" approach to real estate.

Amazon’s dominance online has yet to translate into a successful strategy for connecting with shoppers in the real world.

Developing and testing its Just Walk Out technology capabilities was a driving reason behind Amazon’s rollout of its Go concept, Coury said, and as the technology improved the stores were less necessary.

Amazon now licenses its Just Walk Out technology to more than 200 retailers, including colleges and universities, sports arenas, hospitals and airports. This allows it to profit by marketing the technology without the cost burden of operating a store.

“It was an investment well spent in developing technology," Coury said. “But the growth plans that they had for that brand are over."

Amazon’s bricks-and-mortar retail strategy now seems to be focused on its grocery portfolio.

The company acquired Whole Foods Market for roughly $13.5 billion in 2017 and last week announced that the grocer’s chief executive, Jason Buechel, is now in charge of all grocery operations for Amazon, including its Fresh and Go stores.

Amazon is moving forward with plans to open more locations for Amazon Fresh, which offers a more mass-market selection with often cheaper prices than upscale Whole Foods, after pausing expansion to overhaul the in-store experience. The stores have replaced its Just Walk Out technology with “dash carts," where shoppers scan items before placing them in the cart.

Amazon’s changes to its Fresh stores have improved the shopping experience there, Egelanian said, though he feels the banner is still searching for a niche in the crowded grocery landscape.

Write to Kate King at kate.king@wsj.com

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