Amazon Opens First Bookstore

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James Daunt, CEO of Waterstones in the UK, told the BBC he hopes Amazon’s push into physical retailing “falls flat on its face.” Daunt has also removed Amazon's Kindle from most of Waterstones’ 280 stores.

You can hardly blame him.  It seems ironic the webstore that enrichened itself shuttering so many bookstores-- while crowing about the inefficiency of brick-built stores-- now turns to a physical presence as if it were an Amazon innovation.

Amazon CEO Jeff Bezos

More than 20 years ago, Amazon first rocked the book industry with its online sales, a digital disruption--specialized in books--that battered both bookstores and book publishing. In a short time Amazon captured about 25% of all books sold in the U.S. market.

Not just books. In 2007, Amazon unveiled the Kindle, an eReader that makes book reading a completely digital experience. And then the Fire Phone, the Fire TV, the Fire TV Stick, and Echo...

Today about 19.5% of all books sold in the U.S. are Kindle titles. E-books now make up around 30% of all book sales, and Amazon has a 65% share within that category (Apple has in books +1.65% and Barnes & Noble +7.14%).

But Amazon also sells a broad range of products: art, lawnmowers, iPods, toys, 3D printers, diapers, shoes, gun safes, 3D printers. According to industry estimate, US book sales make up no more than 7% of the company’s roughly $75 billion dollars in annual revenue.

And now Amazon opens its first-ever brick-and-mortar retail store: Amazon Books. And the Amazon VP in charge, Jennifer Cast, says it is their first store but “We hope this is not our only one.”

While Amazon has experimented with pop-up stores over the years to sell its Kindle devices (and replaced some bookstores on college campuses with pickup locations), this first store opened its doors in a shopping mall in Seattle. The company chose Seattle for its first physical bookstore because it’s close to Amazon’s headquarters and because Seattle is a top market for readers...

 

 

With 551 sq m (5500 square feet) of retail space and 186 sq m (2000 square feet) of storage, the store is dedicated to books (although it does offers a test drive of Amazon consumer electronics devices such as Kindle, Echo, Fire TV and Fire Tablet).

Amazon Books shop seems like almost any other upscale book store—except it is distinct from traditional bookstores in only one big way. Every book faces out, rather than be stacked in rows with their facing out. Ordinary booksellers decided years ago that you turn to turn books sideways to fit in more books.  That leaves far less space for books.

Amazon Books Seattle

Yet that suits Amazon fine as they only want to sell… what’s already selling. About 5000 book titles are regularly selected for store stock, based on customer ratings and pre-orders on Amazon.com.

While that might be good business, it offends many book lovers: Amazon, supposedly a champion of books, has not only put many good bookstores out of business—now it creates a new bookstore that carries only the cream and not the mother’s milk of book culture. The less “popular” titles that appeal to niche readers, those limited sellers that are high quality and significant to culture, will languish while Amazon Store(s) bash the last few remaining physical competitors.

For an example, most publishing industry consultants suggest any new store should consider stocking no less than 10,000 titles. Carrying half that amount… well it would be as if a Radio Shack or Maplins store sold only the most popular-sized battery, only one HDMI cable (for example, just Monster Cable brand), or only one best-selling brand of remote control. Unlike the web site, Amazon Books is not about choice.

“The big question is not just whether Amazon is bad for the book industry…” suggests George Packer of The New Yorker, “… it’s whether Amazon is bad for books.”

But there is something far more significant in the Amazon store launch that most reports have missed.

Consider this other observation by George Packer, “Amazon is a global superstore, like Walmart. It’s also a hardware manufacturer, like Apple, and a utility, like Con Edison, and a video distributor, like Netflix, and a book publisher, like Random House, and a production studio, like Paramount, and a literary magazine, like The Paris Review, and a grocery deliverer, like FreshDirect, and someday it might be a package service, like U.P.S. Its founder and chief executive, Jeff Bezos, also owns a major newspaper, the Washington Post. All these streams and tributaries make Amazon something radically new in the history of American business. Sam Walton wanted merely to be the world’s biggest retailer. After Apple launched the iPod, Steve Jobs didn’t sign up pop stars for recording contracts. AT&T doesn’t build transmission towers and rent them to smaller phone companies, the way Amazon Web Services provides server infrastructure for startups (not to mention the C.I.A.). Amazon’s identity and goals are never clear and always fluid, which makes the company destabilizing and intimidating.”

Recently, Amazon even started creating its own “content”—publishing books. Taking food out of the mouths of its main supplier partners… the book publishers who are already being squeezed.

Book publishers were bled by Amazon who relied on taking “co-op” fees that fell straight to the bottom line. Publishers paid ten thousand dollars for a book to be prominently featured on the home page. At the time, they never knew exactly how much these payments helped sales, and negotiations over them became tense.

Without dropping co-op fees entirely, Amazon simplified its system: book publishers were pushed for a percentage of their previous year’s sales on the site, as “marketing development funds.” According to Packer, the larger houses once paid 2-3% per cent of their net sales via Amazon, now must pay 5-7% of gross sales. His article claimed publisher Random House, for one example, currently gives Amazon an effective discount of around 53%.

The Amazon campaign to aggressively push smaller publishers for better prices and margins was called the “Gazelle Project,” named after Amazon CEO Jeff Bezos (once TIME’s Man of the Year) suggested “that Amazon should approach these small publishers the way a cheetah would pursue a sickly gazelle.”

Amazon Books in store

Packer tells us that Amazon company lawyers later insisted the name be changed to the politically-correct “Small Publisher Negotiation Program.” These were probably the same company lawyers defending Amazon in court over predatory industry practices. Lawsuits claimed book publishers were just as vulnerable against Amazon the Big Book Hunter as Cecil the Lion was against well-armed American dentists.

For all that money which drops straight to the bottom line (because it comes in marketing dollars from vendors), Amazon has still not shown consecutive fiscal years with positive earnings since 2011.

It has been four years since Jeff Bezos' company has posted positive earnings in back-to-back fiscal years. Compare this to Facebook (78.90% earnings increase in last 5 years, Netflix (16.89% 5-year) and Alphabet/Google (14.70% 5-year). Their earnings have remained positive for every available fiscal year in the last 10 years. Heck, the current trend is that Amazon's earnings are getting worse, not better.

Yet Amazon does well on Wall Street, its stock rolling forward off the steam from disrupting big markets. And Amazon won’t stop at one store. As long as this first store is successful, you can expect Amazon to roll large. That’s "the Amazon way."

You can expect Amazon to roll out more book stores. And if that is successful, you can expect other categories of retail stores to emerge from Amazon.  Certainly more specialized chains-- maybe an electronics chain to compete with Best Buy. But there's also the possibility they will go after WalMart with massive retail outlets across all Amazon product groups.

Why would Wall Street support this? Because Amazon is strong across broad product groups and getting broader all the time  If this experiment works well to enhance 7% of their business, why not roll it out to the other 93% of Amazon?

It reminds us of the Sylvester Stallone movie--set in the future--where all restaurants have finally succumbed to one global owner and thereafter all restaurants in the world open their doors under the one brand of “Taco Bell.”

After all, for a $73 billion dollar ecommerce company that considers itself a “cheetah” in the consumer jungle, what says “sick gazelle” more than today's retail market?

Go Best Article Ever on Amazon, by George Packer