Since 2005, Amazon has changed how virtually every American shops. That February, the company launched Prime, the first-of-its-kind, lightning-fast subscription delivery service that now has an estimated 147 million members in the United States. Along the way, Amazon invented its own shopping holiday, assembled an army of couriers schlepping your packages in the trunks of their cars, and turned toilet paper into the kind of thing that people have sent to their homes by the case. Amazon’s founder, Jeff Bezos, has made enough money to launch himself into space. Now we appear to know what Amazon’s next great innovation might be: building department stores.
On Thursday, The Wall Street Journal reported that Amazon is planning to test several U.S.-based locations of a new brick-and-mortar retail concept that will focus on stuff like clothes, housewares, and electronics—the kinds of things you might have bought in a department store at the mall before the online shopping apparatus that Amazon helped create drove a nail into that business’s coffin. The stores would be the latest in a series of in-personal retail experiments for the company, which operates bookstores and Amazon Go convenience stores, among others, in addition to its ownership of Whole Foods. The stores will reportedly be about 30,000 square feet, which puts them closer in scale to the average Best Buy than to the multi-floor shopping meccas that dominated American consumer life for a century; they will stock well-known brands, as well as Amazon’s own lines of electronics and other products. (When asked to confirm the WSJ report, an Amazon spokesperson said only, “We don’t comment on rumors and speculation.”)
For anyone who’s even casually followed the flagging fortunes of America’s department stores over the past 15 years, this move might strike you as counterintuitive. Especially during a pandemic, when online shopping has grown explosively and millions of people have gotten used to ordering even their groceries on the internet, why would the world’s most powerful retailer snap up the expansive brick-and-mortar storefronts that have long been a financial albatross for many of its competitors? But the more parts of our lives move online, the clearer it becomes that some things are just better done in person, both logistically and spiritually. Amazon’s continued creep into in-person shopping is just the most recent evidence that America is headed for a digital shakeout.
On a certain level, buying anything you need in life on the internet is undeniably convenient—at least up front. You have more options, you can do research on the fly, and thanks to Amazon Prime’s dominance, most big retailers have been forced to provide free shipping and free returns on basically everything. You can “run errands” while you watch Netflix or wait in line for the bathroom at a bar, and whatever you ordered will show up in two or three days. E-commerce giants have worked for years to break down people’s reluctance to buy items such as clothing and furniture—products that are highly sensitive to taste and preference in ways not always captured in photos—without seeing them in person. Companies have been extremely successful at this; in 2020, Amazon passed Walmart and its huge network of big-box stores as America’s largest clothing retailer.
Unfortunately, no matter how much you streamline product search or payments processing, physical objects still exist in the world. Clothing and furniture still have to be moved from distribution centers to customers, and the labor and freight required to get it to you are expensive. In that way, one of the primary conveniences of Prime is also one of Amazon’s greatest challenges. Because every shipment is free and arrives in a day or two for almost everyone, you don’t have to wait until you need several things to justify making an order; paying for the membership encourages people to use it as frequently and capriciously as they’d like. During the pandemic, the volume of online shopping taxed the country’s shipping and logistics infrastructure past its breaking point. There is no clear way for the industry to keep up if demand continues to grow.
The industry’s biggest problem is what is called “last mile” delivery—the process of actually ferrying your new iPhone charger or earrings to your door from a centralized facility. Traditionally, the United States Postal Service handles the bulk of last-mile deliveries in the U.S.. The country is too large, and too many people live too far away from highways and urban centers to make it profitable for a private company to include them in their services. Amazon has tried to solve the last-mile issue in a number of ways, including contracting out deliveries to barebones shipping operations such as LaserShip and creating its own gig-worker delivery fleet called Amazon Flex. So far, none of these efforts appears to be a long-term solution. An infinitely scalable, profitable fix might not exist. Online retailers are already doing everything they can to cut delivery costs—many gig-work delivery services provide low wages and minimal benefits and require their couriers to use their personal car and pay for their own gas. Delivery workers who have done contract jobs for Amazon report driving dangerously and urinating in bottles to keep up with the expected pace of deliveries. (Amazon insists that its workers are well treated.)
And then there are the returns. Companies might have succeeded in making customers comfortable buying just about anything online, but those purchases still end up being returned at a much higher rate than things bought in person. When the sale doesn’t stick, the costs of all the incentives that retailers piled atop one another to make the sale in the first place start to add up unfavorably. Between 25 and 30 percent of online purchases are returned in an average year, and by one estimate, every return costs a retailer an average of $10 to $20. In 2020, when the pandemic pushed many people to buy more types of things online than they ever had before, returns shot up 70 percent. Taking returns is so cost-inefficient that in some cases, the largest-scale retailers will simply refund your money and tell you to keep the offending product. Your new clutter is worth less than what the freight would cost to get it out of your sight.
The people who do Amazon’s math aren’t dumb. It’s a company that pursues efficiency at virtually any cost, and encouraging people to buy three sizes of the same pair of jeans and send two back just isn’t efficient. It is, in fact, enormously wasteful on almost every level, and not even a particularly great experience for buyers, who now have to manage a small-scale logistics business to ensure that stuff they don’t want is repackaged, shipped back out within a given company’s return window, and actually refunded. Now imagine doing this with a sectional sofa that, as it turns out, doesn’t match your rug after all, and is kind of uncomfortable to sit on, but is nonetheless already in your living room.
What solves all of these problems—the high return rates, the cost-prohibitive last-mile freight, the logistics nightmares, the buyer frustration, and the monumental volume of consumer waste it all sends to landfills—on some level? Stores. Going to a store. In America especially, this notion was obvious for more than a century. Department stores were actually such a good idea, something that people like so much and that works so well, that the Gilded Age barons who invented them used their stores to create middle-class identity from near whole cloth and keep it going for generations.
Amazon helped kill most of those stores, but that has only created a vacuum into which more Amazon products and services are ready to be inserted. If Silicon Valley has taught us anything in the past two decades, it’s that if you have a bottomless pit of money, you can remake an industry in your image. You can acquire customers so quickly that they might not realize they don’t totally love everything you’re doing, and you can embed yourself in their lives in ways that would be tangled and inconvenient to remove, largely by snuffing out competition. Which leaves the retail industry in a precarious position: Amazon, and maybe a handful of its largest competitors, will go about deciding how you get to buy the things you need, with very little meaningful pushback. They’ll set prices, they’ll set labor conditions, and they’ll decide which things are too inefficient for you to buy online. Apparently, those things will go into a store.
Amazon and the companies like it invent the solutions to the problems they created, and you pay for them to be implemented. At least in some cases, physical stores may ultimately win out. You can try on your new pants, sit on your new couch, and leave with the thing you wanted immediately, which, it should be noted, is considerably faster than two-day delivery. Yes, you have to go to the store, but doing so will likely obviate the need for you to go to the post office—the dreaded post office—next week. Work smarter, not harder. It’s what Amazon would do.