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( ) BEZOS is on a quest toAND perfect the ‘last mile.’ THE Will its brick- and-mortarBRICK ambitions turn retailing on its head?

In an interview with TV What’s the idea? What would we do that would be different? How would it be better? ¶ “We don’t talk-show host , want to do things because we can do them. … looked prepared for We don’t want to be redundant.” the inevitable question: That was Nov. 16, 2012. Today, the reigning king of online retailing is ready to turn his clicks into bricks. “Are you headed to brick and mortar?” Pausing long enough to take only a single breath, BY ABBEY LEWIS, MITCH MORRISON AND JACKSON LEWIS Bezos spoke confidently to one of the few reporters with ILLUSTRATION BY MARTIN O'NEILL whom he has gone on the record in recent years. ore than a year after opening And though a company spokesperson em- tomers’ tracks everything they the first physical Amazon phatically debunked that figure—“Not pull from the shelves, eliminating the need bookstore in his company’s even close,” she said—the digital for a checkout. It brings new meaning to the “We would love to, but only if we can have a truly hometown of , Bezos stunned analysts with the late-fall debut of term “-and-go.” is returning to the very play- its incipient c-store . On what all this means for Amazon’s fu- differentiated idea,” he said. “One of the things book he created two decades A video launched on YouTube shows ture strategy, the company is charac- ago when he launched the country’s first customers walking in and out of an teristically mum. “I can’t comment on any that we don’t do very well at Amazon is do a ‘me-too’ online bookstore. First books. Then … who 1,800-square-foot store outfitted with sub- rumors or speculations there might be,” Mknows what? way tiles, wood trim and sleek black shelves. said Brian Olsavsky, senior vice president Well, now we’re beginning to get an idea. It’s stocked with packaged goods and pre- and CFO of Amazon.com Inc., following product offering. ¶ “The question we would always Just days before Halloween, Amazon pared foods made fresh daily by chefs and a question about grocery gossip during the spooked countless retailers with a rumored favorite local purveyors. Using technology company’s most recent earnings call. ask before we would embark on such a thing is: pilot of 2,000 click-and-collect stores. similar to that of self-driving cars, the cus- Rumors? Speculations?

28 csp february 2017 february 2017 csp 29 Spearheaded by wunderkind Bezos, to logistics to their retail platforms—is all the Seattle-based company opened its about finding the best way to get products The dot-com digital doors in 1994. The online bookstore into your home,” Lewis says. “So when eventually outdid venerable behemoths you look at the brick and mortar they are bubble of the Borders and Barnes & Noble. In a decade’s planning, you have to view this as another time, Borders shuttered; Barnes & Noble laboratory for them to find out how they late 1990s greatly reduced its presence. can … create a more unique, convenient Amazon expanded into DVDs, CDs, Blu- experience for the consumer.” rays, apparel, housewares, video streaming, boomed with audiobooks, electronics and more. And Virtual Ceilings while its virtual shelves proliferated, SP’s interviews with more than audacity, the company’s foray into the physical— a dozen retail experts, analysts AmazonFresh, , drones, and authors who have spent jumbo jets, postal carriers out on Sundays— years seeking to understand brashness and, began to take form. Amazon’s culture of audacious It seemed scattered and incongruent, yet Caspirations and Iron Curtain secrecy perhaps, even all moves were directed with the same goal: uncover a common thread: Amazon’s how to perfect the last mile, the final leg in incursion into the arena of brick and mortar a product’s journey to the consumer, with underscores a heightened realization. some justified speed, efficiency and customer satisfaction. “Amazon has … hit a virtual wall,” says “You can’t just look at any one thing retail expert Bill Bishop. “A wall of virtual overreaching. Amazon does; you have to look at Amazon growth. They’re only going to be able to from 30,000 feet above,” says veteran push through and push beyond by having Absurd startups pocketed millions from retail and design consultant Gerald Lewis. some physical presence.” a awash with money. But soon “They’re not confined to online. Rather, Remember when dot-com haters after the balloon took off, it popped. Loudly. online was the way for them to create a predicted the demise of brick and mortar? Still, some businesses anchored in the convenience channel for customers to Well, they weren’t altogether wrong. web remained afloat. And one would change buy things at lower prices and in more Companies such as Kodak, Kmart, the world of retail. convenient ways.” Blockbuster, Sears and Blackberry failed Quarter after quarter, Amazon lost Keeping true to its reputation, Amazon to adapt and have shuttered or are a shell of millions of dollars. It didn’t turn a profit for officials did not respond to requests for an their former selves. nearly a decade. Yet , thinking long interview for this feature. But some brick-and-mortar companies— term, rewarded it with greater interest. “Everything they do—from technology most recently Best Buy and Kohl’s—

allowing customers approves a two-for- to make a purchase one split, giving 1995 with one mouse click. investors one additional Amazon is launched as share for every share an online book seller Amazon goes public held. (The move is AMAZON, BEAT BY BEAT based out of Jeff Bezos’ in May and raises $54 repeated July 1999.) Amazon’s chronology reflects the garage. Within the first million, at a valuation Also in April, Amazon month, it sells books to of $438 million. Shares acquires IMDb (Internet visionary audacity of its founder. It has people in all 50 states are sold at $18 each. Movie Database) for and in 45 countries. an undisclosed amount. shuttered competitors, expanded and Amazon launches its contracted, and stubbed its own toes— Amazon builds an second warehouse In June, Amazon auction website to in November in New adds music as its first all while turning retailing on its head. compete with eBay, Castle, Del. category expansion which flops. beyond books. Note: In the timeline at right, black entries In October, indicate products and services, while 1998 Amazon expands orange entries indicate financial milestones. 1997 In April, Amazon’s to and the Launch of 1-Click, board of directors .

30 csp february 2017 Construction is close to completion at Amazon’s new mysterious physical location, currently known as Project X, in Seattle’s Ballard neighborhood. space has unnerved Amazon and shaken the world’s largest e-commerce company from its perch. “I am surprised that Jeff Bezos is doing this,” Brandt says. “Certainly he wants to deal with the threat from Wal-Mart, and they’re going in this direction.” Former Amazon executive John Rossman is much more optimistic than Brandt, convinced that Amazon will do what it does best: pioneer, test, analyze, incubate and scale. “Grocery retailing is something I think Amazon will excel in, by creating a scalable experience based on store by store, region

photograph by Zach Lewis Zach by photograph by region that reflects what the customer in have adapted to the digital world and, a nearby Wal-Mart Supercenter. each market and demographic wants,” says collectively, are 26% more profitable than Both Wal-Mart and Amazon closed 2016 Rossman, author of “The Amazon Way” their industry peers as a result, according to with flashy small-format store openings, and managing director of Alvarez & Marsal, MIT Sloan research. creating a battleground for the world’s . Wal-Mart Corp., Bentonville, Ark., has two biggest retailers, fought on c-stores’ During a late-fall interview with CSP, mirrored Amazon in its mission to wed turf, with the convenience industry stuck Rossman played soothsayer when he digital and physical for last-mile perfection, between the crosshairs of these two giant predicted Amazon would launch an urban launching a grocery pickup service that competitors as they set their sights on the retail footprint aimed at a more affluent covers more than 100 markets. other. population and engineered by cutting-edge And that’s not all. This mainstay of Bishop, chief architect of Brick Meets payment and fulfillment technologies. old-world retail has opened a new store Click, Barrington, Ill., believes Wal-Mart He envisioned a store in which customers prototype: Wal-Mart Pickup With Fuel. has laser focus on its digital foe, “but it’s not not only buy what’s in front of them, but In 4,000 square feet, Wal-Mart Pickup true the other way.” also can order items from AmazonFresh With Fuel allows customers to fill up Richard L. Brandt, author of “One Click: and Amazon.com via phone and in-store their cars, grab a coffee, snack or other Jeff Bezos and the Rise of Amazon.com,” touchscreens and have items delivered to convenience item, and retrieve their online doesn’t fully agree. He believes the trespass their homes, an Amazon Locker or another grocery order—filled online and fulfilled at of Wal-Mart and others into the digital nearby Amazon store.

Amazon acquires online company Alexa, which profit of $35.3 million, cancels Block View booksellers Bookpages later becomes the name compared with a loss of in 2006. starts in the United Kingdom of the company’s 2001 $149.1 million in 2002. Street View in 2007. 2006 and Telebook in voice-activated virtual Amazon lays off 1,300 Amazon launches Germany, giving assistant. workers in an attempt its video on-demand Amazon access to the to become profitable. service, then known European market. Also, Amazon closes its 2004 2005 as Amazon Unbox, on Seattle call center and Amazon expands to February launch TiVo. 2000 a year-old distribution in August. of , Incorporates private- center in McDonough, based on the idea , 1998-2000 space research Ga., and reduces Amazon’s search engine that fast delivery a tech infrastructure Amazon raises company to operations at its Seattle A9.com starts a project should be an everyday platform, is launched. $2.2 billion despite attempt to lower the warehouse. called Block View, experience rather being in debt. cost of access to space. which it envisions as than an occasional Amazon purchases a visual Yellow Pages indulgence. , an online to pair street-level fashion retailer, 2003 photographs of stores in February for an 1999 Amazon turns an annual and restaurants undisclosed amount. Amazon acquires profit for the first time. with their listing web information The company makes a on A9. Amazon

Month 2017 csp 33 “Amazon will have different platforms completely online, targeting metropolitan to reach customers than most retailers don’t “You can’t just look markets and partnering with specialty have. They have multiple touchpoints that at any one thing stores on local items. are integrated,” he says. “They will have AmazonFresh began delivering to the all of their fulfillment capabilities at their Amazon does; Seattle area, and after more than five years disposal, and they will be patient until they you have to look of testing, it expanded into major population have something that they believe is scalable. at Amazon from centers. Perhaps reflecting a milestone of “I think they will be successful.” scale, Amazon last October changed its And if action is any indication of success, 30,000 feet above.” pricing for Amazon Prime members to use Rossman is right. Days after CSP’s exclusive AmazonFresh delivery, from $299 to $180 interview with the author, Amazon revealed annually. its latest physical store iteration with the But while Amazon’s market value opening of tech-focused and convenience- has climbed to about $300 billion, many heavy Amazon Go. they allow others to take advantage of?” analysts say AmazonFresh continues to When Rossman heard about Amazon disappoint. While some predicted Fresh Go and how closely he’d hit the mark on Fresh Frustration would kill the grocery industry, today Amazon’s retail strategy, he said his “jaw hit ut can Amazon really dis- Amazon holds less than 1% of total U.S. the floor.” What most surprised him hints rupt with touchable tech ex- grocery sales. at what has been conventional retailing’s periences when it still falls Critics say Amazon’s original annual differentiator all along: the physical short on key brick-and-mortar fee scared away many potential customers shopping experience. fundamentals? A look at its and violated Bezos’ famous statement on “I’m not surprised because this is just Bgrocery game offers insights. Amazon’s price advantage: “Your margin is what Amazon does: They leverage the best In the summer of 2007, Amazon started my opportunity.” of computer and data science, tie it to a selling something it never had before: And there’s another impediment. great customer experience and challenge groceries. It was a radical departure from “People like to ‘squeeze the Charmin,’ traditional business practices,” he says. its shelf-stable empire. so to speak,” says Joe Bona, a veteran retail “My jaw hit the floor because it appears to be It was also a natural extension for a designer and co-founder of MosleyBona, such a great customer experience and offers retailer that would eventually come to be Franklin, Mass. “When it comes to fruits Amazon a competitive advantage. known as “.” and vegetables, they want to pick their own “It will be interesting to see if and how While some conventional grocers were tomatoes and sift through the broccoli. they find a way to allow other companies already delivering directly to homes, “They’re not known for fresh,” he to leverage this type of capability,” he Amazon sought to entice digital users to continues. “Why would someone order says. “Will this, over time, be a solution transfer their daily brick-and-mortar routine fresh from Amazon when they can go to

Launch of the Kindle of the announcement, Fire, Amazon’s tablet Bezos claims Prime Air 2007 2009  2010 computer, in November. 2013 could become a Kindle is introduced. Launch of Amazon Amazon acquires Amazon launches a reality in as little as Basics, which sells Quidsi, the parent Amazon Lockers marketplace in . four or five years. Grocery delivery basic, commodity-level company of Diapers. appear, allowing online service AmazonFresh items at a lower price com, for $554 million customers to pick Launch of the Mayday Jeff Bezos buys launches in Seattle. than that of many in cash and stock. up purchases at button, which allows The Post companies selling third-party locations. users to instantly access for $250 million. similar products a live tech adviser directly on their site. Amazon posts lower through their devices, 2008 2011 quarterly profits three in September. Amazon acquires Amazon acquires In February, Amazon times in a row. The 2014 , an audiobooks for $1.28 billion launches a -style company cites the 17 In December, April launch of Fire TV. company, for $300 in stock. streaming service as warehouses it opened Bezos reveals the million in cash. part of its Amazon in 2011 along with its experimental initiative Amazon acquires Prime program. expanding business. , a social video Investors are nervous. meant to eventually platform for gamers, deliver certain packages in August for via drone. At the time $970 million in cash.

february 2017 csp 35 their local or Whole Foods or “You have to view Babs Ryan, principal with ThoughtWorks Trader Joe’s and get fresh meat, fresh fish Retail, , and author of “America’s and fresh produce?” this as another Corporate Brain Drain.” “The lockers were “It’s one thing to trust Amazon for laboratory for them not designed solely with the end purpose toiletries, detergent, canned foods and of delivering Amazon.com sales in the last toothpaste. It’s another to trust them for to find out how they mile, but more so to gather the information your dinner and your arugula salad,” says can … create a more required, on location and about their target retail expert and forecaster Thom Blischok, customers, to develop tactics to siphon visionary global strategist for the Dialogic unique, convenient market share. Group LLC, Phoenix. experience for the “Amazon’s bricks strategy has been in place for more than half a decade,” she Leapin’ Lily Pads consumer.” continues. “Click-and-collect, Pickup ome delivery of fresh goods is Points and AmazonFresh delivery are just an obvious tool in Amazon’s lily pads for leaping toward a much bigger, bricks-and-clicks mission. overarching goal.” But there are others— customers swipe a printed RFID barcode to Ryan believes Bezos’ long-term goal is and one in particular had retrieve their item. to provide that face-to-face, community- HAmazon approaching Jonathan Polonsky in Although Plaid Pantries is unable to driven experience that c-stores offer today. fall 2015. quantify a precise rise in sales linked to “Amazon wants to be your neighbor, not “In the Portland, Ore., area we’ve Amazon Lockers, Polonsky says the stores your store,” she says. “Get ready … Amazon’s had a rash of thefts of packages outside each average 70 to 80 deliveries a week. goals are far loftier than click-and-collect people’s door fronts,” says Polonsky, “It’s pretty significant and, anecdotally, we convenience stores.” president and COO of 110-unit c-store know that the drivers making the deliveries Plaid Pantries, Beaverton, Ore. So Amazon usually buy a beverage or something to Will It Fly (or Drive)? contacted Polonsky about hosting Amazon eat,” he says. “They are absolutely making ast March, Amazon completed Lockers for customers to pick up Amazon- purchases during their drop-off.” a deal with Air Transport ordered packages. “We thought it was an But what do AmazonFresh and Amazon Services Group to fly 20 used opportunity to reach some customers we Locker have to do with the company’s latest Boeing 767 cargo jets for its own might ordinarily not be able to reach.” foray into brick and mortar? Everything. airfreight delivery operation. After piloting lockers at 10 locations, “You can bet that Amazon is leveraging LAnd according to multiple media reports, Plaid Pantries rolled out the drop-off/pick- consumer data they’re acquiring from their Amazon is talking with Boeing about up program to 70 sites. Each store features c-store locker business to acquire market purchasing new 767 freighters to further a minimum 6-foot modular unit, at which share of high-margin c-store products,” says extend its distribution and delivery network. Surely Amazon planes, along with the new normal of USPS trucks buzzing around your neighborhood on Sundays, will get that online order to doorsteps quicker. But will Amazon’s sizable investment in ground and November launch of the four wind farms. and releases its first teamed up with air distribution further propel its brick-and- original original feature film, Amazon to sell cars voice-enabled speaker. March 30 launch of Spike Lee’s “Chi-Raq.” online in . mortar game? Amazon Home Services, “It will depend on the type of store and November launch in which Amazon enters November launch of Amazon announces in the economics of brick and mortar,” says of , which the “on-demand” Amazon’s first brick- early December that Budd Bugatch, an analyst with Raymond focuses on giving users service economy. and-mortar bookstore its brick-and-mortar James, St. Petersburg, Fla. “I will submit it shopping options. location in Seattle. grocery concept, is not a trivial exercise. Executing brick and March 31 launch of Amazon Go, is in test. December launch the Dash Button, mortar is not trivial. … It’s not a given that of in a one-click, Wi-Fi- Expands Amazon someone successful in one realm will be parts of , enabled one- to two- 2016 Flex, which allows successful in another.” which offers free day-delivery device. Fiat Chrysler drivers to sign up to Bugatch cites Tesco, the formidable two-hour delivery. Automobiles announces deliver packages U.K. retailer that floundered in the United Launch of Amazon in November it has using their own cars. States: “They stubbed their toe and other Launchpad, which body parts.” helps startups launch, Moody’s Vice President Charles O’Shea 2015 market and distribute Amazon announces their products. observes a similar challenge. “I think construction of Amazon produces it might be tough for Amazon to all of a

36 csp february 2017 sudden shift gears and try to go brick and a store to pick up their groceries or other engagement technologies and broader mortar in a meaningful way,” he says. “We items, that’s a lot less expensive for them. business analytics. believe that Amazon does not ‘distribute’ One of the first things they’re going to look In an exclusive interview, Wawa in any meaningful way, which we define at is: Can they lower their cost base and President and CEO Chris Gheysens told as controlling the last mile—i.e., getting provide that savings back to the consumer?” CSP his thoughts about whether Amazon product in the consumers’ hands via would find success in small-box formats. proprietary means—but ‘fulfills,’ meaning it Learning From Amazon “I am not sure Amazon will be more has outsourced the last mile to UPS, FedEx, mazon’s moves would be successful than others who have tried to the U.S. Postal Service and other carriers.” entertaining to observe if enter the convenience business,” Gheysens And then there’s the most important they weren’t happening on says. “Their superior logistics and robust element of a successful ground game: store the convenience-retailing customer centricity suggest they could operations. industry’s own turf. And create an interesting convenience model “The ability to develop the right format, ABrandt believes this is where Amazon could and challenge some of our norms; however, select the right sites, hire the right staff, stumble. real-estate strategy, operational execution stock and be able to replenish the right “Competing with c-stores is going and commitment to a noncore business may merchandise is not easy,” O’Shea says. “Our to be exceptionally hard for Jeff Bezos,” be challenging for them.” view is that brick and mortar is harder to do he says. “It’s such a different business.” “The media doesn’t get it,” says than pure-play online retail.” Wawa is among the consultant Lewis. “Amazon “There are obvious reasons why anyone top convenience chains will continue to test retail would want to get a share of the consumer watching Amazon’s move formats employing their spend as it happens in the c-store industry into convenience. With NEXT technological and logistical because it’s so enormous,” says Walt Doyle, more than 700 stores, the MONTH superiority until they have CEO of Boston-based GasBuddy, who comes retailer has How’s Wal-Mart perfected something that from the digital realm, having spent time at successfully established responding really moves the retail game PayPal and a venture-capital firm focused on a food-centric model in forward. digital opportunities. “This retail expansion that competes against to Amazon’s “My guess is that it may is different than opening up a bookstore. If many of the best fast-casual physical foray? take another one to two years you look at the , they’re chains. Wawa ranks among Find out in for Amazon to reach the SITE PLAN NOTES SITE PLAN DEMO NOTES SITE LEGEND PROJECT DATA trying to drive down price times three. the most sophisticated in our March issue. rollout point for bricks-and- Owner: Real Property Associates, Inc Delivery is a big part of their cost base. the convenience channel mortar retailing, but if and Legal Description: Gilman Park Add 1 Less 6 FT for “If they can get a consumer to come to in integrating consumer- when theyalley & pordo—look vac alley & 2out!” less s 6 FT for alley & por of vac alley & 21-22 less N 6 FT for alley & por vac alley

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