Amazon Reigns Online: Could Offline Be Next? (AMZN, AAPL, WMT, TGT)

Quarterly results at Amazon.com Inc. (NASDAQ: AMZN) beat even the company’s own high estimates for revenue and profits. A lot of that was due to the success of the company’s Kindle e-reader and to higher sales of books and other media, both physical and electronic.  To celebrate its good fortune, Amazon announced a new stock buyback program worth up to $2 billion. The buyback announcement gives shareholders a little bonus, but it may prove a lack of imagination on the company’s part about where its future lies.  Or maybe just that there are fewer accretive acquisitions are out there.

The announcement of Apple Inc.’s (NASDAQ: AAPL) iPad tablet has so far had no significant impact on Amazon’s share price, mostly because some feel the Apple device just does not have the “Wow” factor that accompanied the introduction of the iPod or the iPhone.

Amazon may be at a decision point on whether the company will choose to fight it out with big bricks-and-mortar retailers like Wal-Mart Stores (NYSE: WMT) and Target Corp. (NYSE: TGT). During the holidays many pundits made the Amazon vs. Wal-Mart notes.  There have been rumors that Amazon would open retail stores in the UK, but so far Amazon has neither confirmed nor denied those rumors.

There are plenty of signs, though, that Amazon could move in that direction. The company’s share of on-line retail sales is huge and growing. The success of Apple’s retail outlets has proved that offline stores can add to a company’s bottom line, even if only modestly.

And that’s probably what Amazon is trying to figure out: Is an offline presence really worth the expense and effort? And would the store focus on its own products, now only the Kindle and its recently acquired Zappos shoes, or would it offer a variety of products from its suppliers?

Consumer psychology plays a role too. Buyers like to see, feel, and experience products before they lay down their cash to buy them. Amazon has been very successful selling books and music because everyone knows how they work. But e-readers and other technology products, especially ground-breaking products, sometimes need an extra push. A retail store can provide that push.

Another thing that a retail outlet could provide for Amazon is a convenient location for customers to pick-up products purchased online. This could save the customers the shipping charges, and gratify instantly a customer’s desire for a new product. Imagine ordering a new Kindle at lunch, and stopping by the Amazon store on your way home to pick it up. That kind of customer satisfaction is impossible in a strictly online world.

Amazon will almost certainly test the offline waters sometime soon. It is relatively cheap for other offline retailers to compete with Amazon in the online world. And their advantage is that their bricks-and-mortar presence allows them to offer customer service that Amazon cannot compete with.

It will be worth watching if Apple’s iPad can steal sales from the Kindle. If it can, Apple’s retail stores will have been a significant help. And that could be enough to push Amazon over the edge into the bricks-and-mortar world.

Paul Ausick