Amazon heads deeper into brick and mortar with books

SAN FRANCISCO — For a company that long eschewed the brick-and-mortar world, Amazon is opening a lot of bookstores these days. It’s got three up and running, in Seattle, San Diego and Portland, and says five more are coming.

The profits from eight or even 80 bookstores are hardly a rounding error for the Seattle behemoth. So why is it busily building physical locations when for the last 22 years, it’s had a laser focus on online commerce?

The answer, say experts, is that these retail spaces are far more — and far less  — than just

“I don’t think Amazon even realizes what they have at this point. This is just a test,” says R.J. Hottovy, an Amazon analyst with the investment company Morningstar.

Amazon declined to elaborate on its plans.

Many see them as experimental platforms by a company that has never been afraid to try out new ideas and just as importantly to ruthlessly prune away the ones that don’t work. It’s a strategy made possible because Amazon shareholders seem fine with allowing it to forgo profits at times in order to learn for the future.

On the one hand the stores are the proverbial clean, well-lighted space for books, but they also constitute “cheap learning” for the company, said Mike Shatzkin, founder and CEO of Idea Logical Company, a publishing industry consulting company.

“The PR value and the educational value are huge, and there is the possibility that they will arrive at retailing formulations that can scale and provide a big payoff,” he said.

A couple of themes seem to be emerging.

The stores are using books to bring in an educated, relatively affluent stream of customers who then are exposed to Amazon’s electronic offerings such as the Echo, Kindle, Fire tablet and Fire TV. They’re prominent in a display and play around with space in each that’s instantly recognizable to anyone who’s spent time in an Apple store.

“These stores effectively are a showroom,” Morningstar’s Hottovy said.

To a certain extent the books are once again Amazon’s “entry drug,” just as they were in 1995 when the company first opened and sold only books, said John Mutter, who writes the bookstore industry newsletter Shelf Awareness.

They’re also a physical advertisement for Amazon’s profitable $99-a-year free delivery and extras Prime program. The bookstores feature a two-tier pricing system. Amazon Prime members pay Amazon’s online price for books while non-Prime customers pay the list price, typically 10% to 30% more.

In the future, the bookstores might also become an extension of Amazon’s existing logistics footprint, a convenient place for consumers to pick up items they’d previously ordered, or drop off items they are returning, suggests Hottovy.

It’s a model Amazon’s been successful with on college campuses, building popular pick-up and return outlets at at least 11 schools in the United States.

“That’s giving them the blueprint and maybe the chance to replicate that model,” he said.

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