Wednesday, February 03, 2016

Amazon to Open Brick-and-Mortar Book Stores: A Great Idea Indeed: Time to Buy the Stock?

One of the things I used to love was perusing the bookstore to look for things I would like to read. Ever since Amazon killed Borders and severely damaged Barnes and Noble I haven't done this very much. Now this news is very welcome.
After dipping its toes into brick-and-mortar retailing last year with its first physical bookstore, online giant Inc. is poised to dive into the deep end.

The Seattle company plans to open as many as 400 bookstores, Sandeep Mathrani, chief executive of mall operator General Growth Properties Inc., said on an earnings call on Tuesday.

“You’ve got Amazon opening brick-and-mortar bookstores and their goal is to open, as I understand, 300 to 400,” said Mr. Mathrani in response to a question about mall traffic.
One thing about a book is that it is great to flip through a copy and see if you like the prose style and such. I don't do this on my tablet because you have to download some of the book or read a preview. It is just so much easier to pick up a book and flip through it and put it down if you don't like it. Hopefully Amazon understands this and that is why they are going brick-and-mortar. I would love to have my Amazon stuff sent to the store and pick it up there and maybe buy something else while I'm doing that. The Wal-Mart online shopping model. 

Another idea is that they can use these stores as the hub of Amazon fulfillment services. If you are a seller on Amazon you just drive your products down to these stores and they will send them out for you. That way Amazon doesn't have to have the seller mail them the product so they can store them in some warehouse. 

They had higher costs this past Christmas because so many people used their fulfillment services that they had to rent a bunch of overflow warehouse space really quickly. I'm sure that space was very costly being around the holiday season. If they had a brick-and-mortar they would store the items there as well as in their fulfillment center. In fact the seller could drive the product there and a buyer can then pick it up from that same store. Or they can save money by simply using Amazon trucks and planes to send them back and forth.

Finally, with Amazon Web Services they could build out an engineering force based at their brick-and-mortar places. Imagine them having a Geek Squad like group that could come into your business and set up your virtual servers, email system, do any programming your company needs, offer testing in the cloud etc. for one price. Kind of a Data Center in a box. 

With this they can get into tech consulting and go head-to-head with IBM and whomever for that high margin business. If they want they could even do an Amazon network services fiber to go head-to-head with Google. They could conceivably sell you the network and the data center all at once. All of this would be very easy if they have a Amazon Consulting Services (or whatever they call it) added to their brick-and-mortar place. Kind of like CompUSA used to have business services added onto their stores back in the day. However, it will be much cheaper and more lucrative because they won't have to sell you expensive servers made by HP or Dell. They simply sell you cloud services using AWS.

In any case, I think this might be a buying opportunity for the stock. It got beaten down when they missed earnings due to the problems above. They had great revenue growth but they had to spend a bunch of extra money that they might not have had to if they had brick-and-mortar to augment their fulfillment centers. They will have a high CAPEX in the near term to open these stores but it will save them big money and allow many more ways of selling their products. Hell, I would drive down to an Amazon Store simply to try out Amazon Echo to see if all the hype is justified.

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