Unconfirmed Expansion Would be Major Move into Omni-Channel Retailing by E-Commerce Giant
Investors, analysts and reporters tuned in to General Growth Properties' year-end conference call were anticipating the mall operator's CEO, Sandeep Mathrani, would perhaps comment on reports that Brookfield Asset Management is considering acquiring GGP.
Instead, they heard Mathrani mention during the final minutes of the company's fourth-quarter 2015 earnings call Tuesday that Amazon.com plans to roll out "300 to 400 bookstores" around the country.
The Wall Street Journal, CNBC and numerous other media outlets seized on the remark, creating a mini online media frenzy that prompted GGP to walk back the statement, saying the comment was not intended to represent Amazon's plans.
Other published reports, however, cited Amazon sources who confirmed that the Seattle-based company is planning to open physical bookstores, but not the numbers mentioned by Mathrani.
Meanwhile, Amazon.com issued a terse no comment. "We don’t comment on rumors and speculation," Amazon spokeswoman Sarah Gelman in response to an email this morning to an inquiry about the comments.
The topic was also a discussion point on Kimco Realty's conference call. President and CEO Conor Flynn told analysts the California-based retail REIT has met with Amazon to talk about opportunities.
"I think they’re going to be very select and very strategic on their store opening plan," Flynn said. "And so I think it’s going to be more of a measured approach rather than a full-blown assault on opening a lot of bricks and mortar stores."
The imbroglio attracted more attention to the evolving brick-and-mortar, omni-channel plans by formerly online-only retailers such as Amazon, clothier Bonobos, online sunglass eyeglass seller Warby Parker and cosmetics retailer Birchbox.
Analysts have predicted a roll out of physical stores by Amazon, which has been building large 1 million-square-foot-plus distribution centers as well as smaller "sortation" centers in the U.S. and around the world in an effort to conquer the 'last mile' as it moves into premium same-day delivery to shoppers.
A move by Amazon to open stores "would be both confirming and threatening to traditional retailers," said Simeon Gutman, retail analyst with Morgan Stanley Research, in a research note.
On one hand, an Amazon rollout would validate the usefulness of a physical store as a destination and fulfillment node to further engage customers, providing further evidence that "the demise of bricks-and-mortar stores is greatly exaggerated," Gutman said.
"Store fleets are under-appreciated assets that can be used offensively to help retailers better compete in an omni-channel world," Gutman said in a research note Tuesday night, adding that free shipping and free returns -- not inexpensive for any seller of goods -- can be streamlined by leveraging store networks.
The potential downside for Amazon's competitors is that the e-commerce giant could level the playing field from a shopping convenience standpoint by reducing the "instant gratification"advantage enjoyed by existing physical stores in both buying items and returning them if necessary.
Moreover, while mall-based retailers tend to stay within the lines of their product categories, "who knows if Amazon will attempt to sell products outside of books," Gutman said, pointing out that that the ambitions of founder and CEO Jeff Bezos have always stretched far beyond the books category.
Mathrani's comment came in the final minutes of GGP's earnings call with analysts. Responding to a question about foot traffic at its malls, he noted that almost 95% of all soft goods are purchased and almost 40% of returns for online purchases are process in brick-and-mortar stores.
"Case in point, you've got Amazon opening bricks and mortar book stores, and their goal is to open as I understand, 300 to 400 bookstores," Mathrani said. "The last mile is all important, which is why Bonobos is opening bricks and mortar stores and Warby Parker is opening bricks and mortar stores and Birchbox is cutting their overhead to open bricks and mortar stores."
Mathrani continued, "In the mall business, the impact of e-commerce is a lot less. It’s actually your friend, not your enemy."
Amazon has been quietly tip-toeing into the realm of physical retail for over a year. Reports in February 2015 surfaced that Amazon was in talks with Radio Shack Corp. to take over the debt-riddled electronics chain's mall-based stores.
The company has also dabbled in other physical locations at mall kiosks and college campuses, opening "Amazon @ University" customer order and pickup locations at the University of California, Davis, UC Berkeley, Perdue University, and University of Massachusetts, Amherst over the last year.
In November, the company opened its first physical bookstore, Amazon Books, in University Village in Seattle, where the company is headquartered. The company describes the 5,500-square-foot store as "a physical extension of Amazon.com," noting on its web site that store prices are the same as prices offered online by Amazon.com, "so you’ll never need to compare our online and in-store prices."
"Who would have thought that Amazon was going to open stores in the very category that it first set its eyes on," Gutman said. "And in a second bout of irony, despite the physical bookstore space having been decimated over the past 15 years, it is one category in which Amazon's physical presence will still be disruptive to traditional retailers."
As for the reports that Brookfield, which recently announced a takeover bif for Rouse Properties, is also considering acquiring GGP, Mathrani said at the beginning of his prepared remarks: "as a matter of policy, we don't comment on rumors in the marketplace."