3 reasons Amazon is opening a brick-and-mortar bookstore chain

Amazon.com (NASDAQ: AMZN) may be the biggest threat to brick-and-mortar retail, but the company is now, surprisingly, embracing the format it's been killing for 20 years.

The e-commerce giant is increasingly relying on storefronts including AmazonBooks, Amazon Go, and AmazonFresh Pickup to build sales and meet customers where they are.

The company recently opened its seventh AmazonBooks store, this one in Manhattan's Time Warner Center. On a recent visit, I found a bustling store that was full of customers, though most appeared to be browsing rather than buying, with only a few at the checkout counter. The store presents a highly curated selection of about 3,000 of Amazon's most popular and other selected titles, with all the books facing out, in a relatively small space. It's a notable difference from Barnes & Noble (NYSE: BKS), whose superstores generally offer a cafe, cozy chairs, and room for events like readings.

Amazon is accelerating the retail experiment with at least six new stores in the works. Though some may be surprised at its brick-and-mortar foray, there are several reasons why Amazon wants to get face-to-face with its readers. Here are three big ones.

1. Bookstores are coming back

When Amazon introduced the Kindle, many thought that physical books were headed to their inevitable demise. E-books offered a number of advantages over their tactile counterparts, including having a whole library accessible through an internet connection, portability, and pricing, as e-books were often cheaper than the paper-based variety.

However, bookstores proved to be a more durable format than once thought, and are experiencing something of a comeback. From 2010 to 2015, the number of independent bookstores increased by 21% as they found a sticky customer base that appreciated the value of a bookstore, which can host readings and events, offer conversation and discussion about books, and enable browsing and discovery in a way that the internet can't. The stores have also benefited from a 2015 agreement that allows publishers to set prices on e-books, which now usually match prices on physical books.

Not surprisingly, Amazon is jumping onto this trend. Its new stores are heavy on colorful eye-catching titles like cookbooks and children's books that one might not search for on the internet, but look appealing in the store. The company also leverages its reviews, posting the Amazon star ratings under each book with a quote from a review. There's also a section for books with more than 10,000 reviews and for ones with 4.8 star ratings or better.

RELATED: Take a look at more retailers that are actually opening stores this year:

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8 retailers that are actually opening stores
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8 retailers that are actually opening stores

Dollar General

Discount stores have generally bucked the current retail trend, and Dollar General (NYSE: DG) has been one of the leaders in that space. The company plans to open 1,000 new stores in 2017 -- that will come on top of the 900 locations the company added last year.

REUTERS/Jim Young

Costco

Costco (NASDAQ: COST) exemplifies the idea that slow and steady wins the race. The chain has plodded along in its usual fashion year after year seemingly unfazed by industry headwinds and competitive jostling.

In 2016, the wholesale retailer opened 29 new warehouses with 21 of them in the U.S. That followed 23 new stores globally in 2015, and this year, the company will continue with plans to add 31 new stores (17 of them in the U.S). 

REUTERS/Mohammad Khursheed

Wal-Mart

Last year, Wal-Mart (NYSE: WMT) closed 269 locations, but it still saw net additions to its network. Over 100 of those closures stemmed from the shuttering of its small-format Express locations, which management originally hoped would be a source of future growth.

Going forward, Wal-Mart plans to open 59 new locations in the U.S. in 2017. That is in line with its normal expansion pace, and that growth will include new SuperCenters and more Sam's Club locations. To service those stores and a growing digital business, Wal-Mart will open new distribution centers as well.

REUTERS/Daniel Becerril

Target

While Wal-Mart has abandoned its Express concept, Target (NYSE: TGT) is embracing the idea that going small can allow it to access markets and areas it otherwise would not be able to. The chain expects to operate over 100 small-format stores within the next few years, including one in New York City's Herald Square.

Furthermore, Target also plans to redesign 600 of its locations by 2018. Like the smaller stores, they will feature a modernized design highlighted by "glazed, large glass windows at the front of store, stenciled concrete floors and unique lighting throughout," the company said in a press release. "Additionally, the new design offers two entrances, each with a specific guest need in mind."

One entrance will be for customers looking to shop the store. It will feature market-appropriate seasonal displays. The second location will serve grab-and-go customers looking for a quick snack or other fast-serve items as well as those picking up digital orders.

REUTERS/Mike Blake/File Photo

Nordstrom

While many of its department store rivals have struggled mightily, Nordstrom (NYSE: JWN) has done surprisingly well. The chain exceeded its earnings forecast in 2016 despite full-year comparable-store growth falling 0.9%.

The company has been slowly growing its store footprint, adding five locations in Canada in the fourth quarter alone, along with 21 of its lower-priced (albeit still higher-end) Nordstrom Rack stores. In 2017, the company has planned one new full-line store as well as 15 new Rack locations. 

REUTERS/Rick Wilking

T.J. Maxx and Marshalls

Like many of the other persevering companies on this list, TJX Companies (NYSE: TJX), which owns Marshalls and T.J. Maxx, has succeeded by discounting. Both chains, as well as sister brand HomeGoods, offer a wide, changing selection of lower-priced merchandise. This model helps drive customer traffic as shoppers visit the stores more often, not knowing what deals they might find each trip. It has clearly worked well with the company delivering 21 straight years of comparable-store sales increases.

In its past fiscal year, TJX Companies added nearly 200 stores globally. It plans to continue that growth in 2017 with the company having a long-term plan to add 1,800 more locations for a total of 5,600. And that only includes growth of existing chains in established markets. The company is launching a fourth concept in 2017, which the company will test in two locations.

(Photo by Joe Raedle/Getty Images)

Hobby Lobby

Hobby Lobby opened 56 new stores in 2016 with more coming this year. The chain, which bills itself as "the world's largest privately owned arts and crafts retailer," expects to open 60 new locations in 2017, all in the U.S. That would bring its total number of stores to over 750. Between 1,700 and 2,500 employees will be hired to staff the additional locations.

Dick's Sporting Goods

Dick's Sporting Goods (NYSE: DKS) has been a rare success story in a market that has seen major competitors like Sports Authority go bankrupt, while remaining players struggle to stay afloat. Dick's has encountered its own challenges, but overall, it has managed to deliver growth in the face of increased online competition.

In 2017, the company, which operates the Golf Galaxy chain as well, expects to open 43 new Dick's and nine Golf Galaxy stores. In some cases, the new stores will be converted Sports Authority or Golfsmith locations that Dick's acquired.

Photographer: Sean Proctor/Bloomberg via Getty Images
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2. It's all about Prime

Nearly everything Amazon does, it seems, is tied in one way or another to its Prime membership program. The $99/year service is the centerpiece of Amazon's flywheel strategy, offering benefits including free two-day shipping on selected items, access to Amazon Prime Video and the Kindle Lending Library, and cloud storage through Amazon Web Services.

At AmazonBooks, a Prime membership will get shoppers the same price on books that's listed on Amazon.com. Non-Prime members have to pay the full list price on books. That difference is a minimal benefit for Prime members as they won't save any money on shopping in the store versus online, but it does act as an incentive for non-Prime members to sign up for the service, and additionally gives the company a face-to-face opportunity to sell holdouts on the benefits of Prime.

Similarly, AmazonFresh Pickup also caters to the company's membership hierarchy -- the service is available only to Prime members, and AmazonFresh members get the additional benefit of being able to pick up orders within 15 minutes.

3. It's a device showcase

Not surprisingly, Amazon also uses its new bookstores as opportunities to display and sell its many devices, including the Kindle, e-book readers, Fire tablets, Fire TV devices, and the Echo with voice-activation assistance from Alexa.

The move follows a similar strategy from Barnes & Noble, which has at times devoted a significant and prominent portion of its floor space to its Nook e-reader. It also has shades of Apple's(NASDAQ: AAPL) retail approach, which has become the country's most successful retailer by sales per square foot by selling high-priced gadgets inside sleek, attractive stores.

Amazon's current device strategy is coalescing around Alexa, the voice-activated technology that underpins the Echo and newer models of devices like the Fire TV.

While the AmazonBooks stores are likely not intended to be profit centers for the company, pushing sales of new devices is probably the best business argument for them.

But the overarching reason for the new retail model, which extends beyond the devices, is to introduce another iteration of the Amazon brand to customers and reinforce it with loyal ones. Judging by the crowds I saw the other day, AmazonBooks seems to be off to a roaring start.

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