The real reason Amazon launched Pop-Up shops

The real reason Amazon launched Pop-Up shops

A few months ago we looked into Amazon’s gravitation towards physical locations and explained why it was a sound strategy. We were also amongst the first to report the leaked info that the company was planning to open some 300-400 pop up shops. Sandeep Mathrani, the CEO of a massive company that owns malls across the United States, quickly backtracked his statement that tipped us off, but the world already knew. Amazon was planning something big.

Now, we have seen this come to fruition. Amazon has opened up a couple dozen pop up shops in American malls and reports indicate they’ll reach 100 soon. The multinational corporation isn’t big on revealing its strategies, or even providing statements about its plans, but they have inadvertently left behind a breadcrumb trail that gives us a good idea of what they’re up to and why. We asked a panel of experts for their input on various aspects of the Amazon campaign and the suspected reason why Amazon launched the pop up shops just might surprise you.

The Pop Up Shops are Not About Making Money

“In these early days it’s all about learning, rather than trying to earn a lot of revenue,” CEO Jeff Bezos said earlier this year when he confirmed that Amazon was planning to open more stores. At the time, news outlets like the Independent speculated that he was referring to opening more bookstores, like the one in Seattle, but this was undoubtedly a hint at what we’re watching unfold now.

Nikki Baird, a Managing Partner at Retail Systems Research, an industry market intelligence firm specializing in the impact of technology on the extended retail industry, recently spoke about her experience with Amazon’s Colorado pop up shop in Forbes magazine article “Amazon Pop-Up Stores: What’s Missing.” In the piece, she describes how genuinely thrilled an Amazon employee who helped her seemed to be that a customer was present, and she also acknowledges how awkwardly the final transaction was closed out, suggesting the cashier had little experience with the process.

We asked her for further insights on her experience, given her expertise in the industry. “I don’t see these having a substantial impact on Amazon’s sales – with around 100 kiosks, this is a drop in the bucket for the company,” Ms. Baird told us. “At the moment, I’d be surprised if those kiosks are performing well enough to cover their costs.”

The Devices Team, Rather than the Retail Team, is Calling the Shots

“One interesting part about Amazon’s pop-up stores is that they’re run by the devices team, not the retail team that opened Amazon’s bookstore last year,” points out Business Insider tech reporter Eugene Kim. This alone speaks volumes about Amazon’s intentions, as the company appears to be hiring device experts, rather than traditional salespeople to run the show.

In keeping with this, Mr. Kim believes that the stores are focused on getting people hooked on Amazon devices, as a means to encourage more Amazon Prime traffic. At the same time, he notes that the launch of the pop up shops coincides with the growth of the Echo, Amazon’s Siri-like device that listens and talks back. Since its release in 2014, the Echo has learned a whole new host of tricks, including playing music, ordering an Uber, and managing smart devices throughout the home.

Although Amazon doesn’t release sales data, various news outlets began reporting that 3-4 million units had been sold, making the Echo a solid success. However, if you haven’t heard of the echo until now, you’re not alone. The device hasn’t gotten the household recognition that other Amazon devices have, such as the Kindle and FireTV. “It feels like a sleeper hit that could potentially break through to the mainstream,” said Quartz writer Dan Frommer last summer.

It’s All About the Echo

Consultant, strategist, and Forbes contributor Rob Salkowitz truly hit home this point in his article “Amazon Retail Locations Pop Up To Offer Shoppers An Echo, Not A Choice.” In it, he explores why he thinks the stores are geared towards the Echo and also suggests that the mall kiosks are a way to encourage more impulse buys. We weren’t entirely sold on the idea that a $180 device could really be an impulse purchase, so we asked Mr. Salkowitz for clarification.

“Echo is targeting a market that would see value in home automation and the ability to order products quickly and easily, but may not be comfortable with more complicated technology. This is the same audience that is hard to reach online and with digital marketing strategies,” he explained.

The Echo Needs a Unique Mode of Advertising

“Dollar for dollar, setting up kiosks in the malls to raise awareness and sell products is probably a better bet than doing a big traditional advertising campaign, since it plays to Amazon’s strengths as a retailer and lets customers see and try out the product in person,” Mr. Salkowitz said. “Once people have Echo in the house, it will be easy for Amazon to convert them to Prime customers and capture a big chunk of retail business.”

It’s becoming commonplace for tech companies to open up venues devoted to teaching consumers about their product. The hands-on approach has already been utilized by Apple and Google with success. Apple stores often host classes that teach people how to use their devices, and Google stores in the UK are all about giving consumers a chance to experience their products as a means to encourage sales. Amazon also applied this strategy to its bookstores, but curiously has not included it in their pop up shop campaigns.

The Tech has Stigma

In addition to having to overcome the hurdle of showing people the value in their devices, Amazon has one other big problem which may explain their “low-key approach,” as Mr. Kim called it. Early adapters to tech may still feel burned over the failure of one of Echo’s predecessors, Revolv, which was unexpectedly yanked from the hands of consumers earlier this year. Revolv was a device similar to Echo that could literally run an entire smarthome and retailed for around $300. The problem was, Revolv was purchased by an Alphabet (Google) subsidiary called Nest, which opted to pull the plug entirely.

“On May 15th, my house will stop working. My landscape lighting will stop turning on and off, my security lights will stop reacting to motion, and my home made vacation burglar deterrent will stop working. This is a conscious intentional decision by Google/Nest,” said Arlo Gilbert of the debacle. “To be clear, they are not simply ceasing to support the product, rather they are advising customers that on May 15th a container of hummus will actually be infinitely more useful than the Revolv hub.”

Nest abruptly notified customers that their devices would stop working and that they were not covered under warranty, which Mr. Gilbert refers to as a “Pretty blatant “f**k you” to every person who trusted in them and bought their hardware.” Indeed, this was tough to swallow for an untold number of Revolv users, but it also added stigma to the technology. Nowadays, tech-savvy consumers are well aware that their devices could cease to function at any point in time and that they’ll have no recourse.

Other Retailers Have Reason to Fear the Echo

Unlike other products, the Echo can’t really be picked up by other retailers because it presents serious competition. “If I were Wal-Mart, I’d be very concerned about this,” Mr. Salkowitz said of Amazon’s ability to dominate retail with the Echo’s capabilities. Eventually, the Echo will likely be able to handle all of a person’s media, place orders for household supplies and goods, and more.

Ms. Baird echoed his sentiments, but for other reasons. She initially found it curious that the clerk didn’t ask for her Amazon account information in order to link her new Echo to her. “I realized afterwards that he had the unique ID of the Echo that I had purchased, which if Amazon is tracking inventory at that level, would mean that as soon as I registered the Echo with my account, Amazon would know that I had purchased it from the kiosk in Colorado, and they would be able to associate any subsequent purchases I made through the Echo to that point of purchase,” she explained. “Forget about what they sell in those kiosks – traditional retail should be most worried about what kind of data Amazon can collect through the sales made at these kiosks, and how that applies to what they learn about how consumers cross over from physical to digital.”

It’s worth noting that Target stores once sold a full line-up of Amazon devices, but dropped the brand in 2012 to “fend off competitive threat,” says Khadeeja Safdr of the Wall Street Journal. Although Target is welcoming Amazon back just in time for the 2016 holiday season, the Echo is noticeably missing from the products they’ll showcase.

What’s to Come of the Pop Up Shops?

Amazon has poured considerable funding into the pop up shops. Though small, they feature crisp designs, clean layouts, and glowing enormous flat screens which extoll the virtues of FireTV and Amazon’s other tech. It’s difficult to assess the true value of the pop ups, because all signs point to Amazon opening them with the intent for them not to make money.

“The kiosks have a pretty substantial feel to them, more substantial than a lot of the other retailers that typically occupy those kiosk pads in malls. But it still wouldn’t surprise me if many of them disappear after the holidays,” says Ms. Baird. “If they had some kind of owner experience there – “help me fix my broken Amazon electronic device” or “train me how to use it better”, or better yet “bring your returns here” – then I’d be more confident they intend a more permanent stay. Like the bookstores, I think this is an experiment for them. If they reap substantial value over the holiday season, they may keep it. But even if the kiosks do return substantial value to the company, Amazon may yet bag them and take what they’ve learned back to the drawing board for the next holiday season.”

Amazon’s Story is Further Proof There’s No Wrong Reason to Pop Up

A lot of business owners seek out pop up shops as a means to garner immediate sales and, as Ireland’s premier marketplace for pop up shop rentals, we do see this a lot here at Popertee, but there’s so much more to it than that. Whilst they can be used for immediate gain, it’s very clear that Amazon has something else entirely in mind with theirs. Although only Amazon knows for sure that this is, they aren’t talking, but the bits we do know about how they’re applying the strategy suggests it will impact their online sales drastically, increase the base of people who use their devices, provide them with invaluable data, improve the image of the technology they’re selling, and much more.