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What does Amazon’s shifting retail footprint mean for the sector?

As the first quarter draws to a close, market demand for retail properties is experiencing a rapid rebound and investors and analysts are eager to see where the sector is headed as it rides out the disruptions of COVID-19. does. A major shift in 2022 so far is Amazon’s recent decision to close all 68 of its brick-and-mortar retail locations, including Amazon Books, 4-star and pop-up stores. The company says the move allows it to focus on its Amazon Fresh, Whole Foods Market and Amazon Go businesses. But it has prompted questions about how the e-commerce giant’s strategy is changing and what closures might say about the trajectory of brick-and-mortar retail.

“The stores were located almost exclusively in malls and served as more showrooms than traditional stores,” said Kevin Cody, strategic advisor at real estate data firm Costar Advisory Services. “They didn’t expand Amazon’s distribution network in a meaningful way and generate a small portion of the company’s revenue.”

The company’s 4-star and pop-up locations sold best-selling items from electronics, web sales, and Amazon-branded products, including the Fire tablet and Amazon Echo lines. While the closures clearly represent a re-evaluation of strategy, the company’s decision is also a sign that the retail sector can expect to see disruption and more moves toward new concepts in the future, said Daniel Taub, national director of retail and net. As per the lease division with commercial real estate brokerage Marcus & Millichap.

“At its heart, Amazon is not a retailer, they are a data-driven company that retails across various distribution channels.” Taub says. “They have a history of successfully innovating and trying new concepts, new techniques, new methods, many of them failing to achieve only one or two or a few that are very successful.”

In fact, Amazon’s decision should not be seen as a retreat from a brick-and-mortar retail strategy, says Anji Solanki, national director of retail services and practice groups at commercial real estate services firm Colliers. The decision to focus on large-format retail, such as a Whole Foods location and a department store, makes sense as Amazon works hard to maintain favor among its existing customers, she notes. Is. “Especially because more traditional retailers have made significant investments in their online and multi-channel offerings,” she adds.

As Solanki says, Amazon’s brick-and-mortar strategy offers the major advantage of gaining a foothold in urban areas that are too small to accommodate big-box retail giants like Walmart.

Many retail investment experts see Amazon’s call to re-evaluate its retail outlook as a positive for the sector. As Marcus and Millichap’s Taub put it, “They may not have thought about what it looks like, how it’s going to operate and what they’re going to sell, but the fact that they’re experimenting and making money in recognizing that.” How to be present within retail is a good thing because ultimately no online retailer can really be successful from a profitability standpoint without some sort of physical distribution channel.”

Amazon’s decision also saw it cancel several planned 4-star stores nationwide. This included plans to open a physical Amazon 4-Star store in Philadelphia’s Cherry Hill Mall, although the city still has one Amazon Fresh grocery store and at least one more on the way. In Louisville, Ky., the e-commerce giant has also canceled a 4-star store it plans to renovate to a 4,900-square-feet for $650,000. Location at Oxmoor Center, a major mall.

“With the rapid decline in mall foot traffic during the pandemic, stores saw a significant drop in both sales and interaction with consumers,” Cody says. “For the retail market and mall sector, I don’t expect it to be particularly impressive.”

Analysts also noted that Amazon waited until the physical retail sector began to rebound before deciding to close locations. As mall traffic is improving, along with the retail sector, the decision is not a reflection on the condition of malls in general, notes Cody.

Amazon executives have said the company is still committed to growing its physical retail footprint, including new ventures like the Amazon Style the company plans into brick-and-mortar apparel retail. according to this wall street journal, the company is planning to open 30,000 sq ft. Concept trial store in California, complete with high-tech dressing room. Amazon has been trying to make inroads into apparel sales in recent years, including its own label apparel.

“They will continue to focus and invest in their grocery and apparel brands in the near future, as they are able to better utilize their competitive advantages across market segments such as distribution, technology, and e-commerce,” says Cody.

Although Amazon bought Whole Foods in 2017, overall sales from the company’s physical stores have declined every year since the acquisition, prompting many analysts to question the company’s strategy for the grocery sector.

But Amazon’s plan for its grocery business now focuses on disruption, including its fully automated “Just Walk Out” technology, which eliminates the need for checkout lines of any kind. The technology makes sense when a customer takes an item off a shelf, adds it to their virtual “cart” and checks it out as the customer leaves. The system requires that customers have an Amazon account and be able to process payments through the Amazon app, the Amazon One payment system, or the card linked to the customer’s account.

“There’s already been a lot of talk about the “Amazonization” of Whole Foods,” says Solanki. “Amazon is treating Whole Foods as another step in its technological expansion into retail stores.”

During the first quarter, Amazon opened its first fully-automatic Whole Foods store in Washington DC on 21,500 square feet. Property in Glover Park, Georgetown. The launch is actually a reopening following the location’s previous closure in 2017, and offers a significant chance to revive a major grocery-anchored shopping center.

“The grocery sector has a tailwind from the pandemic, but it’s a competitive space,” Cody says. “If they actually make the shopping experience more convenient, they have a better chance of being successful.”

According to Taub, “the grocery sector will be the most constrained sector relative to other retail uses because Amazon has such a significant amount of data. I would say that with Amazon, what they do initially is not necessarily their end game. What’s the plan, for example with 4-Star and Amazon Books. It’s something that everyone needs to keep on their radar and watch because like Amazon Go, they’ll be bringing different methods and technologies that Today’s consumers are looking forward to seeing and adopting others in terms of creating a grocery experience. Wants to.”

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