Amazon’s Secret Strategy with its new Department Stores

Amazon never does things for only the obvious reasons, which makes me wonder what the company is up to with its latest retail foray: department stores.

Last week, the Wall Street Journal reported:

The new retail spaces will be around 30,000 square feet, smaller than most department stores, which typically occupy about 100,000 square feet, and will offer items from top consumer brands. The Amazon stores will dwarf many of the company’s other physical retail spaces and will have a footprint similar to scaled-down formats that Bloomingdale’s Inc., Nordstrom Inc., and other department-store chains have begun opening.

These new department stores will extend and complement the company’s other brick and mortar retail endeavors that started with bookstores, 4-star, and the Amazon Go robot bodegas, and then extended into their purchase of Whole Foods and launch first of the short-lived 365 grocery chain and later the new chain, Amazon Fresh.

Having almost annihilated brick-and-mortar bookstores and massively contributed to the perils of ordinary retail and shopping malls, the obvious reason for Amazon to move into department stores is that there’s a vacuum the company can profitably fill.

As the Journal article notes:

An expanded store footprint would enable Amazon to offer consumers a bevy of items they could try out in person before deciding to buy. That would be particularly beneficial in apparel, which can often be a guessing game for customers shopping online because of size and fit concerns. It would also give customers even more instant gratification than the quick shipping offered by Amazon for online purchases.

But I’m convinced there’s more to it.

When Amazon bought Whole Foods in 2017 it was to get into the more than one trillion dollar (per Statista) annual U.S. grocery business. One less obvious reason for the acquisition was to put fulfillment centers and easy returns into places where there were already Whole Foods stores (which also overindex with Amazon Prime subscriptions). While “the milk at the back of the store” is a decades-long success strategy for grocery stores, “Amazon returns at the back of the store” prompts customers to notice all the goodies in the aisles between the front door and the returns desk. It also lowers Amazon’s costs by having customers return things directly rather than dropping them at…