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Retailers Should Be Wary -- Amazon.com Is Closing All Its Pop-Up Stores

Rich Duprey, The Motley Fool

The initial read on the decision by Amazon.com (NASDAQ: AMZN) to close all 87 pop-up stores in locations like malls, Whole Foods, and even Kohl's (NYSE: KSS) was that it was finding out the physical retail environment was a lot more difficult than it imagined. Despite the announcement made several days prior that the e-commerce giant was planning a determined assault on the bricks-and-mortar grocery store industry by launching a new chain of its own, analysts at Jefferies suggested that Amazon closing its pop-up stores meant it wasn't cut out for physical retail.

Amazon's policy regarding its pop-up stores has certainly been a bit manic. From buying Whole Foods to begin with and then shutting down its 365 discount chain to declaring it will open 3,000 Amazon Go stores in just a couple of years and now closing down its chain of pop-up locations, the retailer's pace has been frenetic.

But though there are indications that Amazon's physical retail wanderings haven't been a stellar success so far, the retailer remains committed to owning a larger swatch of the space.

Amazon pop-up retail store

Image source: Amazon.com.

One step back, two steps forward

Amazon's physical store sales primarily consists of its 500 Whole Foods stores. The pop-up locations, three existing 4-star stores, the single Books location, and the handful of Go stores haven't contributed all that much revenue comparatively speaking, and sales at Whole Foods have been soft at best since the acquisition. In the year or so since Amazon acquired Whole Foods, physical store sales are slightly lower than where they were, though that's partially the result of Amazon changing the grocery store's fiscal calendar.

It was supposed to open as many as 100 pop-up stores when it began rolling them out nationally in 2016, but the company never quite achieved that milestone. We actually had advance warning that Amazon was planning something with them when Kohl's CEO Michelle Gass told analysts on the retailer's quarterly earnings conference call that its pop-up experiment was ending: "We've made the decision to transition from the store-within-a-store concept to a more robust wholesale relationship with Amazon as we found a better way to serve our customers."

Despite Kohl's frequent positive comments about its experiments with Amazon, crediting the company with driving traffic to its stores, she said they were shifting gears and would instead be selling more Amazon products at some 200 stores -- but it would be a traditional shopping experience, without employees dedicated to the project.

Teachable moments

Although Amazon is closing down its pop-up stores, it's is also reportedly ready to expand both its Amazon Books and 4-star concepts, the latter being the store where it only sells items rated four stars or higher on the Amazon website. Considering its supermarket ambitions, it's clear Amazon is as committed as ever to being a full-scale omnichannel retailer.

And pop-up stores are by nature not permanent fixtures in the retail landscape. Their purpose is to familiarize the public with a company or product and then move on. Amazon was looking to see if it could get the attention of consumers who may not be familiar with its Alexa-enabled smarthome products, or whether it could engage with them in a setting that for Amazon is non-traditional. It was likely more about making Amazon a part of their shopping routine, regardless of where they were making a purchase.

Ready for the next phase

Rather than a failure, the pop-up stores were undoubtedly an important learning experience for Amazon. It continues to probe the U.S. consumer, looking at how they shop and what it means for a retailer increasingly finding its feet in two different worlds.

Amazon has collected vast volumes of data on consumers' online shopping habits, but still has relatively few touchpoints in the physical world. The pop-up stores likely helped fill that void, and their closure indicates Amazon is ready to explore the next level of bricks-and-mortar retailing.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.