Amazon to Open First Brick-and-Mortar Site

October 9, 2014

Greg Bensinger and Keiko Morris, The Wall Street Journal

Amazon.com Inc. AMZN -2.27% plans to open a store in the middle of New York City, according to people familiar with the plans, the first brick-and-mortar outlet in its 20-year history and an experiment to provide the type of face-to-face experience found at traditional retailers.

The site, set to open in time for the holiday-shopping season on the same busy street as Macy’s Inc. M -2.73% ’s flagship store, would mark an attempt by Amazon to connect with customers in the physical world. Amazon has built its business on competitive pricing and fast shipping. Until now, though, it couldn’t compete with the immediacy of a traditional store.

Amazon’s space at 7 West 34th St., across from the Empire State Building in Midtown, would function as a mini warehouse, with limited inventory for same-day delivery within New York, product returns and exchanges, and pickups of online orders. The Manhattan location is meant primarily to be a place for customers to pick up orders they’ve made online, but will also serve as a distribution center for couriers and likely one day will feature Amazon devices like Kindle e-readers, Fire smartphones and Fire TV set-top boxes, according to people familiar with the company’s thinking.

Opening a physical location is “about marketing the Amazon brand,” said Matt Nemer, a Wells Fargo analyst. “Same-day delivery, ordering online and picking up in store are ideas that are really catching on. Amazon needs to be at the center of that.”

Operating stores also carries risks. Until now, Amazon largely has avoided some costs associated with retailing, including leases, paying employees and managing inventory in hundreds of stores. Those expenses could imperil the company’s already thin profit margins.

Amazon’s first store, set to open in Manhattan, will mark an experiment to connect with customers in the real world. Dan Gallagher discusses on the News Hub. Photo: AP.

Some details about the New York site couldn’t be learned immediately, including the size, length of the lease or amount of inventory that would be housed there. People familiar with the matter cautioned that Amazon’s plans could change, and that the store is an experiment and could be deemed unsuccessful.

If it is successful, however, the New York location could presage a rollout to other U.S. cities, according to the people familiar with the company’s thinking.

Amazon has studied opening a brick-and-mortar outlet for years, even scouting locations in its hometown of Seattle about two years ago before scrapping the idea because of insufficient foot traffic, said another person familiar with the effort. Amazon once sold Kindles in Wal-Mart Stores Inc. WMT -0.49% and Target Corp. TGT -1.93% outlets, but those retailers pulled the devices from shelves two years ago in an apparent nod to Amazon’s growing power in retailing.

The 12-story building on 34th Street, owned by Vornado Realty Trust, once housed an Ohrbach’s department store and now has Mango and Express stores at street level. There are two loading docks at the back of the building.

The Amazon store will be in the shadow of the Empire State Building, which last year attracted 4.3 million visitors to its observatory. It is a block east of Herald Square, where Macy’s flagship store draws more than 20 million annual visitors, according to the 34th Street Partnership, a business-improvement district.

“Foot traffic on 34th Street is unparalleled,” said Chase Welles, executive vice president at SCG Retail, a real-estate-service company.

The streetscape of 34th Street has changed dramatically since the 1990s, when it was populated by low-end retailers. Since then, the business-improvement district and area companies have spent about $2 billion on upgrades to the neighborhood and individual properties, according to the 34th Street Partnership. Global and national retailers such as Zara, Uniqlo and Vince Camuto have opened stores on the street.

Vornado Chief Financial Officer Stephen Theriot hailed the 34th Street building on a recent webcast. “As a former department store, it’s got very high ceilings, it’s got big, open floor plates, and that’s the type of property that a lot of the creative class tenants” favor, he said.

Ordering online with the option to pick up in stores has proved popular; retailers including Wal-Mart, Home DepotInc. HD -1.08% and Macy’s, offer the service. Others employ delivery services such as Google Inc., GOOGL -2.22% eBay Inc. or startup Deliv Inc. to fetch orders from stores, rather than warehouses, and bring them to customers.

Amazon has experimented with physical stores before, including pop-up shops and locations run by subsidiaries. Last November, Kindle-brand pop-ups appeared in U.S. malls, selling e-readers and tablets from vending machines. Its Zappos unit has a store near its Kentucky distribution center and once operated a few outlets in its hometown of Las Vegas; and its Quidsi unit runs a cosmetics store in Manhasset, N.Y.

Amazon also has set up large metal lockers in convenience stores and parking garages around the country, to accommodate deliveries and returns. The lockers don’t offer same-day delivery, however. The lockers have been a popular option, and Amazon has expanded them to a number of cities, including overseas, after initially just offering them in Seattle.

Amazon took some inspiration from a trial by the U.K.’s Home Retail Group HOME.LN -0.81% PLC, allowing customers to order eBay goods online and pick them up in its Argos stores, said one person familiar with Amazon’s thinking. By year’s end Argos expects to provide the service at 650 stores from 65,000 eBay sellers.

Other primarily online retailers have opened physical storefronts, including clothier Bonobos Inc., eyeglasses purveyor Warby Parker, and subscription beauty-products service Birchbox.

New York-based Bonobos opened its first of 10 retail stores in 2011; it plans 40 by 2016, said Chief Executive Andy Dunn. The stores offer limited inventory so customers can determine their size and choose styles and patterns; the merchandise is then shipped to their home from a warehouse, or can be collected later in-store.

Mr. Dunn said customers who order clothing from Bonobos brick-and-mortar stores spend roughly twice as much as online shoppers.