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With Amazon Books, Jeff Bezos Is Solving Digital Retail's Biggest Design Flaw

Why is Amazon suddenly so interested in opening physical retail stores?

With Amazon Books, Jeff Bezos Is Solving Digital Retail's Biggest Design Flaw

[Photo: George Rose/Getty Images]

As upscale outdoor shopping centers go, Seattle's University Village is unusually forward thinking. There's a Starbucks, of course, but also a sushi place where the dishes roll by on a moving belt and each plate has an RFID sensor on the bottom to digitally track its freshness. There are locally owned boutique shops just a few doors down from chain stores, like Banana Republic, and digital-physical crossovers such as Bonobos. And you'll also find an Amazon Books, one of the first physical stores from the e-commerce giant that is associated more with closing bookstores than opening them. In a year that you thought couldn't get any weirder, Amazon is planning to open at least six bookstores across the country by the end of 2017.

Technically the stores are still an experiment. But after visiting one it's clear that this is in some ways an ingenious refinement of the bookstore idea—what Warby Parker is to eyeglasses and Shake Shack is to fast food, Amazon Books is to Barnes & Noble. The store solves one of the biggest problems with online shopping: discoverability. The solution isn't derived by stocking an infinite number of books; it's just the opposite—this bookstore uses data-driven design to increase the likelihood that you will pick up a book that you didn't know you wanted to read. And it's part of a larger push within Amazon to reinvent the way physical retail works that includes the automated Amazon Go convenience store.

Video: Everything You Need To Know About Jeff Bezos In A Minute

Amazon is hardly alone in trying to reimagine physical retail for the internet age. Rent the Runway and Bonobos offer high-touch entryways to the model they have optimized online. Warby Parker had to build its own iPad-based point-of-service terminal system to personalize the sales process and keep employees out on the floor instead of lost in a storeroom. And Walmart acquired Jet.com for $3 billion at least in part to figure out what to do with all those stores across the country. The competitive edge that Amazon has is its trove of consumer data, which allows the company to experiment and optimize—even if that means failing repeatedly—until it gets the formula just right.

[Photo: courtesy the author]

"I've been asked for 20 years, 'Will you guys ever open physical stores?'" Amazon CEO Jeff Bezos tells me during an interview at his offices in November. "And I've answered pretty much the same way the whole time, which is that we will if we have a differentiated idea. You know it can't be a me-too offering, because the physical world is so well-served already."

On first entering the store, it doesn't look like much of a departure. There are rows of bookshelves, some electronics gadgets as well, a decently stocked magazine stand, and a kids' area in the back with a couple of comfy chairs. It's fairly crowded on this typically cloudy Saturday afternoon, and the vibe is somewhat industrial, favoring exposed brick and black iron girders. A large sheet of butcher paper hung on a tear-off roll mounted to the wall behind the cash registers features a handwritten quote from Jane Smiley.

So what makes Amazon Books different? The first thing you'll notice is that all of the books are facing out so that the cover is on full display. For a company that counts frugality as a core principle, stocking books in the least space-efficient way possible doesn’t seem to make much sense. But Amazon didn't do it by accident; this was A/B/C tested. When the store concept was being tested in a warehouse south of town, the company procured old books from Goodwill and created three aisles for customers to browse.

[Photo: courtesy the author]

"In one aisle we had all the books face out," says Jennifer Cast, an early Amazon employee who returned after a long hiatus to oversee the Amazon Books rollout. "In another aisle we had 50-50, and another aisle we had two-thirds/one-third." The face-out aisle won, customers liked it more. "What we realized is we felt sorry for the books that were spine out because they didn't get to shine," says Cast. "And your eye was drawn to the face-out books."

In practice this means that Amazon Books can't stock as many titles as competing bookstores. But why bother? Everyone knows you can order any title you desire on Amazon, and the store has terminals where you can order a book if the need arises. Instead, Amazon Books only carries highly rated and popular titles culled from Amazon's online rankings.

"If you walk into Amazon Books, the physical store, with a preconceived notion of the book you want," Bezos says, "there’s a good chance you’re going to walk out disappointed." There are only a few thousand titles in the store. But nothing here has less than a 4.6 out of a 5-star rating. And there's a placard below each book offering some kind of Amazon-derived metadata about the title. Under Hillbilly Elegy there was an excerpt from an online customer review, the book Sprint had an "If you like . . . then try" suggestion, and The Way of the Shepherd touted that "92% of customers rated this five stars."

Since Amazon already knows what people in the area are reading, each store can also tailor its selection to meet those tastes. There's even a small section dedicated to popular picks within the local community.

[Photo: courtesy the author]

Books aren't the only thing for sale at the store. There's a pop-up shop worth of Amazon gadgets as well, and clerks on hand to show you how they work if needed. A long padded bench along one wall near the magazine stand is broken up by side tables with Amazon Fire tablets to play around on. There's a table stocked with those remote-controlled Star Wars BB-8 droids, which are made by a company that was also part of Amazon's startup Launchpad program. And there's a small selection of overpriced knickknacks, such as colored pencils and Sugru putty, near the checkout counter.

"Bookstore is very small right now, it's just a few stores," says Bezos when I ask about which parts of the business he's focusing on the most lately. "But I spend time on it because it's very interesting."

But he didn't explain why Amazon would want to get into the physical book-selling business in the first place. The company pulls more than $135 billion in revenue, and turned a $749 million profit in the fourth quarter of 2016, up 55% year-over-year. Barnes & Noble, by comparison, does $4 billion in revenue, which makes it smaller than Amazon's cloud computing business, and it's been showing negative growth for the past five years.

The answer may be Prime. Bezos has long called the $99-per-year membership service a "flywheel" that drives Amazon's growth. The company has always been secretive about how many people are signed up for Prime—independent analysts say it's between 60 and 70 million people in the U.S. But Amazon does usually go out of its way to tell analysts and the media the percentage growth of Amazon Prime subscriptions. That is until the most recent quarterly earnings call, which led to speculation, from Recode among others, that Prime is becoming saturated. Anyone in the U.S. who uses Amazon and is likely to become a Prime subscriber has probably done so already.

[Photo: courtesy the author]

One way to solve this problem is to expand into India and other markets. But for the U.S., I think it may be Amazon Books and other physical stores such as Amazon Go. It's a new way to induce people to sign up for Prime. Perhaps the quirkiest aspect of the Amazon Books store is that Amazon Prime members pay less than nonmembers for the same books. In practice this means that you have to scan the book's barcode to figure out the price, and there are scanners with display screens mounted strategically throughout the store for this very purpose. But the store is also a constant reminder about the benefits of Prime—whether for a discount on the cover price of a book, or to get all the benefits that come with a Kindle Paperwhite, Amazon Fire TV Stick, and Echo voice control.

The Prime checkout system didn't work perfectly. When I go to the register to buy a couple of books, the point-of-sale terminal didn’t offer me a discount because the Prime account is under my wife’s name. The clerk kindly gave me the discount anyhow, and advised me to download the Amazon app. Not only would it solve my specific problem, he pointed out, but it also provides a way to purchase items without having to stand in line at the checkout counter.

Correction: An earlier version of this story said that Barnes & Noble's $4 billion in annual revenue was a bit larger than Amazon cloud computing business, it is actually smaller than Amazon's AWS. The story has been updated to reflect this fact.

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