Amazon (AMZN) to Close 68 Physical Stores Amid Sluggish Sales Growth

Amazon is winding down its Pop Up, Amazon Books, and 4-star stores as a direct response to slower sales growth than anticipated.

Amazon.com, Inc. (AMZN), a giant in online retail, surprised many by expanding into physical retail with acquisitions like Whole Foods and launching its own brick-and-mortar outlets. However, the company has now decided to reverse course, announcing the closure of all 68 Pop Up, Amazon Books, and 4-star stores across the U.S. and U.K. Closure timelines will differ by location. While Amazon has not disclosed the exact number of employees affected, it has pledged to support impacted staff by helping them secure alternative roles within the company and offering severance packages to those opting to leave.

Key Highlights

• Amazon is closing all Pop Up, Amazon Books, and 4-star stores with staggered closure dates.
• This move follows a quarterly report revealing Amazon’s slowest growth since 2001 and the weakest stock performance among major tech firms.
• Despite these closures, Amazon remains dedicated to innovating in physical retail through long-term concepts and advanced technologies.

Challenges in Brick-and-Mortar Sales

Amazon’s physical retail segment, including Whole Foods Market and Amazon Fresh, has seen declining sales compared to 2018 figures. Amazon Fresh initially operated as a delivery service from Whole Foods locations before expanding to 25 standalone stores predominantly in California and Illinois.

Physical store revenues accounted for only 3% of Amazon’s $137 billion revenue last quarter, primarily driven by Whole Foods. Overall, growth in physical retail has lagged behind Amazon’s other business segments.

Retail Realities

Michael Pachter, an analyst at Wedbush Securities, commented, "Retail is challenging, and Amazon is realizing this firsthand." He views Amazon’s venture into physical bookstores as a strategic misstep and suggests that CEO Andy Jassy, who took the helm in July 2021, likely made the closure decision after a thorough review of company operations.

Amazon opened its first physical bookstore in Seattle in 2015, a move that surprised many given Amazon’s origins as an online bookseller. The company’s dominance in online book sales contributed to the downfall of traditional bookstores like Borders.

Amazon’s physical bookstores leveraged data analytics to stock shelves based on customer reading habits and online reviews, showcasing the company’s technological strengths.

The stores being closed also featured branded electronics such as Fire tablets and Echo smart speakers. The 4-star stores highlighted Amazon’s top-selling online products. This retreat from physical retail coincides with Amazon’s slowest growth in over two decades and underperformance in the stock market compared to other tech giants.

Stock Market Performance

In 2021, Amazon’s stock rose only 2.4%, trailing behind fellow FAANG stocks: Apple (AAPL) surged 34%, Meta Platforms (FB) climbed 23%, Netflix (NFLX) increased 11%, and Alphabet (GOOGL) soared 65%. Microsoft (MSFT), a FAAMG member, also outperformed Amazon with a 51% gain. The Nasdaq Composite Index advanced 21% during the same period.

Amazon’s Continued Commitment to Physical Retail Innovation

Despite the closures, Amazon remains committed to pioneering physical retail experiences. The company is focusing on ventures like Amazon Style, its first brick-and-mortar clothing store, and continues to invest in its grocery chains Amazon Fresh and Whole Foods Market, as well as Amazon Go convenience stores. Amazon is also advancing its cashier-less Just Walk Out technology.

Innovations such as Amazon One, which enables payment via palm scans, and Dash Carts equipped with sensors for seamless checkout, highlight Amazon’s ongoing efforts to revolutionize physical shopping. The physical stores division is led by Dilip Kumar, a close associate of Amazon founder Jeff Bezos.

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