An acquaintance who lives in a suburb of Philadelphia remembers the day in August 2021 when the first Amazon Fresh store opened in Pennsylvania, sporting the company’s bright, modern graphic signage.
In the seven miles between the town where he lived and the new Amazon Fresh, there were four major grocery chain outlets (Acme, Weis, Giant, and Wegmans) plus a Target and a locally owned produce store with wholesale prices for bulk fruits and vegetables. Less than a mile beyond Fresh was a BJ’s Wholesale Club with its deep-discounted gas, a full-scale Walmart, and an Aldi’s.
The hype for Amazon Fresh was that it provided a “seamless grocery shopping experience,” with “new ways to make grocery shopping more convenient, including the Amazon Dash Cart, which enables customers to skip the checkout line, and new Alexa features to help customers manage their shopping lists and better navigate the aisles.”
“I remember at the time thinking I should probably check it out,” he said recently. “A futuristic look at the mundane grocery store experience. But four years later, I’ve never set foot in the place and have no plans to. I’m busy. I have too many choices already. And it’s Amazon, the company that owns a grocery chain nicknamed ‘Whole Paycheck,’ and is practically a commodity brand for everything else.”
Fresh was just one of several projects Amazon launched as part of what commercial real estate agents hoped would develop into a cornucopia of new leasing business to fill the gap created by the shuttering of malls and shopping centers.
In early 2021, Amazon let it be known that it intended to go beyond its total domination of ecommerce and open 3,600 stores, with three leading concepts: Amazon Fresh, Amazon Go (a chain of convenience stores), and Amazon 4-Star, a mini store that only carried the highest-rated, high volume items for sale on the website.
At the time, the pandemic-shaken bricks-and-mortar world of Walmart, Target, and the rest were caught flat-footed, playing catchup in the online space. There was actual debate over which was the way to go in retail—ecommerce or bricks-and-mortar. Amazon flourished during the pandemic and some wondered if ecommerce would kill bricks-and-mortar.
Back in 2021, First Insight spoke with Adam W. Ifshin, founder and CEO of Elmsford, New York-based DLC Management Corp., operator of several hundred shopping center and mall assets. He pointed out at the time that while Amazon’s net product sales surged in 2020 (36%), so did fulfillment costs (45.5%). By some estimates, Amazon’s shipping costs were 18.5% of net product sales and that was before accounting for the staggering rate of returns.
Ifshin was unimpressed by Amazon’s plans to project a physical retail presence. The company owns ecommerce, he said. “Now they want to become Walmart?” He predicted that the concept of order online, pick-up in store and curbside, “is here to stay.”
Today, it looks like Ifshin had it exactly right.
According to a recent feature in The Wall Street Journal, “After a decade-long experiment with bricks-and-mortar stores, Amazon’s dominance online has yet to translate into a successful strategy for connecting with shoppers in the real world.”
The company has cut its Go convenience store fleet by half, the 4-Star stores are gone, along with an attempt at opening bookstores, ironically the first category that Amazon killed back in the 1990s.
The company is reportedly still tinkering with Fresh and Go. Whole Foods has grown, reaching net sales of $5.2 billion in the third quarter of 2024 (compared to $61.4 billion at Amazon’s online store). But Amazon accounts for just 3% of U.S. grocery sales versus 30% for Walmart.
Nick Egelanian, president of retail-advisory firm SiteWorks Retail, told the Journal, “I don’t think they really understand retail. Running warehouses and shipping stuff efficiently is not the same as greeting a customer and saying, ‘May I help you?’”
Jeff Edison, a real-estate investor who owns grocery-anchored shopping centers, told the Journal, “They keep testing these concepts thinking one of them is going to connect with the consumer in a big way. But can you think of any examples where they’ve actually done the bricks-and-mortar retail well? I can’t.”
Understanding customers online versus in-store is vastly different and require a different set of tools and experiences. One thing is certain, gaining that understanding is critical to success.
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