Why Amazon retail stores make sense

The online retailer may open a test boutique store, according to reports. You know, the idea isn't half bad.

By Kim Peterson Feb 6, 2012 5:27PM
Is Amazon (AMZN) planning to open a brick-and-mortar retail store?

One digital publishing site is reporting that the company plans to open a test store in Seattle sometime this year. The company envisions a boutique-style store focused on selling Kindle e-readers as well as books from the Amazon Exclusives line, reports the Good E-Reader site. Amazon is not commenting on the reports.

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Some investors are bewildered by the news. Didn't Amazon make a big business by avoiding the traditional retail structure? Doesn't this go against everything the company stands for?

At one time, the answer might have been yes. But times are changing for Amazon. Here's why at least exploring a store makes sense:

1. Amazon now sells its own devices. It wants people to buy Kindle e-readers and the new Kindle Fire tablet, but it can't physically show them these gadgets first. People need to visit Target (TGT) or another retailer that carries Kindles, or they need to know someone who owns one. People want to play with one before buying, and this would help Amazon's sales.

2. Amazon needs to provide tech support. When my Kindle began having problems, Amazon couldn't help me much on the phone. The company simply replaced the Kindle instead of trying to work through the problem. If Amazon had a product store with its own version of Apple's (AAPL) Genius Bar in the back, it might be able to cut down on replacement costs by helping customers through their technical issues.

3. Amazon needs a place for its own books. The company is becoming a publisher with its own line of exclusive books. But it's having a devil of a time selling those books through traditional retail channels. Rival Barnes & Noble (BKS) says it won't sell books published by Amazon in its stores. Amazon needs a place where it can showcase its books to readers.

4. Taxes are becoming less of an issue. States are getting mighty tired of residents ordering from Amazon in order to skip paying sales tax. Amazon will begin charging California residents a sales tax this year. Texas sent the company a bill worth millions of dollars for unpaid sales taxes. Setting up a retail store in any state would require Amazon to begin collecting sales taxes from all residents in that state. Amazon normally would shy away from this, but states are going after the company regardless.

Amazon has been rumored to be opening its own retail stores for years. The company even received a patent in 2009 for a storefront-type building that some thought would lead to physical locations.

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5Comments
Feb 7, 2012 5:02AM
Feb 7, 2012 9:01AM
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NO! if you put a store in each state then you have to pay tax on product. It is a toss up, if you put a store in the state then people would not shop near the level as online. Amazon has a wide variety of product from themselves and other vendors that cannot be carried in the stores, so why buy if you have to pay tax?
Feb 7, 2012 3:09PM
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The reason people shop Amazon, is to avoid tax, and save money.  They avoid the brick and mortar tax clause. Amazon building a store will just be like shooting themselves in the foot. The only people to benefit from them building a brick and mortar store would be there competition.  the Tax difference has been a determinating factor in several of my transactions. Now if it wasn't a storefront, but basically a pickup window, they may get around the brick and mortar clause, as long as no financial transactions take place at the site, but basically they'd probably have to have a return /pickup system in place for that to work? Hmmm...
Feb 7, 2012 7:23PM
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how about a amazon store downtown or at a local mall. we need more stores like amazon, location is good, good products, wide choices!

Feb 7, 2012 3:15PM
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Some things are a given: "As sure as Death and Taxes"; as the old saying goes. Everyone knew it was only a matter of time before online stores were forced to collect sales taxes. People aren't going to stop buying online, they'll just gravitate to the lowest cost versus best service out there. Unfortunately, this is NOT Amazon. I don't see this as a big deal, there are plenty of other places to buy things, cheaper than Amazon.
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