Aug 26 (Dow Jones) -- Amazon.com plans to open several large brick-and-mortar stores in the United States that will operate similarly to department stores, a move to help the tech company extend its reach in sales of clothing, home goods, electronics and other areas, people familiar with the matter said.
The plan to launch big box stores will mark a further expansion for the online shopping pioneer into traditional retail, an area long disrupted by Amazon.
The company expects some of its first department stores to be in Ohio and California, the people said. The new retail spaces will be around 2,800 square meters, or smaller than most department stores, which typically occupy around 9,300 square meters, and will offer items from major consumer brands.
Amazon's stores will dwarf many of the company's other physical retail spaces and have a footprint similar to the scaled-down formats that Bloomingdale's, Nordstrom and other department store chains have begun to open, the people said.
It's unclear what brands Amazon will offer in stores, though the company's private-label products are expected to be prominent, the people said. Amazon sells dozens of products including clothing, furniture, batteries, and electronics through many of its own labels. Plans are not yet final and could change, these people said.
Amazon's plans represent an evolution in the company's efforts to move into traditional retail after years of taking market share from large carriers, moves that helped push many into bankruptcy. The company's growth in online shopping helped hasten the downfall of once-mighty mall operators and other brick-and-mortar empires.
Amazon is now the largest clothing seller in the United States, surpassing Walmart, according to Wells Fargo.
Founded in 1994 as an online bookstore, Amazon has gradually gained a foothold in physical retail through the opening of book stores, grocery stores and other physical spaces. The company bought the Whole Foods Market grocery store in 2017.
Amazon is pushing in an area that has struggled for decades. Department stores were once large and exciting places to shop, where consumers could find everything from ovens, toasters, to evening gowns under one roof. But they have lost out to discounters, fast-fashion retailers and online players. A generation ago, department stores accounted for 10% of retail sales, excluding cars, gas and restaurants, according to estimates by consultancy Customer Growth Partners. So far this year, they represent less than 1%.
Its problems worsened last year during the depths of the Covid-19 pandemic, when JC Penney, Neiman Marcus Group, Lord & Taylor and Stage Stores filed for bankruptcy.
JC Penney and Neiman Marcus reemerged under court protection under new owners. Lord & Taylor now sells only online and Stage Stores has been liquidated.
Analysts and industry executives aren't counting department stores just yet. Chains like Macy's and Kohl's reported strong sales last week as shoppers restocked their closets after cutting back on clothing purchases last year.
"People are absolutely going back and shopping at department stores," John Idol, CEO of Michael Kors' parent Capri Holdings, told analysts on a conference call last month.
Amazon approached some US clothing brands about two years ago with the idea of opening large-scale stores that would showcase its products, a person familiar with the matter said.
An expanded store footprint would allow Amazon to offer consumers a large number of items that they could try out in person before deciding to buy. That would be particularly beneficial on clothing, which can often be a guessing game for customers shopping online due to sizing and fit concerns. It would also give customers even more instant gratification than the fast shipping offered by Amazon for online purchases.
Amazon executives have felt that brick-and-mortar stores would allow better engagement with customers and provide a showcase for its devices and other products to shoppers who might not otherwise have tried them, a person familiar with the matter said. The company has tried to innovate from traditional ones while building a network of stores that could gain insightful customer data and provide new shopping experiences.
While brick-and-mortar stores have taken a hit during the pandemic as people sheltered at home, foot traffic has gradually returned, though it remains below 2019 levels, according to ShopperTrak, which uses cameras to count traffic. in US retail stores.
Sales from Amazon's physical stores fell about 5% last year as customers shopped more online due to the pandemic. The segment's year-over-year sales grew 11% during the second quarter of this year.
In recent years, the company has invested more in building its fashion business and giving shoppers greater choice when it comes to buying clothes. Amazon has had a harder time breaking into high-end fashion. Although Oscar de la Renta started selling cocktail dresses on Amazon's website last year, few luxury brands have followed suit.
Over the years, Amazon has used its influence to expand into new markets, disrupting some industries and gaining traction in many others, including entertainment, groceries, health care, and more. While it's unclear how far its physical and retail ambitions will grow, the company has been steadily adding stores for years.
Amazon opened its first physical store in 2015, a bookstore in Seattle. It attempted to differentiate stores from the competition by providing discounts to Amazon Prime customers, offering its own devices for testing and sales, and creating a highly curated selection of books based on a ratings system.
Amazon now operates more than 20 bookstores across the country, as well as more than two dozen four-star Amazon stores, outlets that sell electronics to kitchen products. Four-star stores have typically been around four thousand square feet. Two years ago, the company said it would close many "pop-up" stores it had opened in malls. Small stores showcased gadgets like smart speakers, tablets and Kindle e-readers.
The company's technological innovations have been particularly present in its line of grocery stores, which began with its purchase of Whole Foods. These now include its Amazon Go cashierless convenience stores in Chicago, New York, San Francisco and Seattle and its more conventional Amazon Fresh stores in several states. It's unclear if Amazon is planning to introduce any store features such as cashierless technology in new retail stores.
