Amazon Eyes the Wilds of Main Street

The poster child for e-commerce has been in talks with at least one major specialty chain to set up kiosks for face-to-face sales.
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Amazon.com

(AMZN) - Get Report

, the poster child for e-commerce, is considering going where no online company was ever supposed to venture -- to Main Street.

The Internet icon has approached at least one major specialty chain about opening kiosks in the retailer's stores, says a person who is familiar with the proposal.

"Amazon wanted a physical presence in stores for customers to pick up and return products," he says. The retailer, whom he declines to name, turned Amazon down, preferring instead to use its stores to leverage its own budding online business.

William Curry, an Amazon spokesman, declined to "comment on business activities that

the company either may or may not have undertaken that haven't been announced."

The fact that Amazon would even consider the need for a real-world presence speaks to the ambitions of the Seattle-based concern, which is trying to sell all things to all people all the time. It also shows how quickly assumptions about Internet retailing are changing.

"E-tailers would like a distribution point out there," says Martin Moad, vice president of investor relations for

Tandy

(TAN) - Get Report

, which owns the

RadioShack

consumer electronics chain. He says his firm has had some discussions over the past year with online retailers regarding a partnership, but the talks went nowhere, because "we're going to use our 7,000 RadioShack locations to leverage our online strategy." RadioShack will begin selling products online at the end of August.

Amazon is already starting to look less like a pure e-tailer and more like a regular old retailer, complete with warehouses full of inventory. The company is even running "help wanted" advertisements in the Sunday edition of

The New York Times

looking for buyers for a wide range of products, including

Jedi Knight

light sabers and art deco radios.

Amazon "has decided to pursue a basic retail model," sniffs David Kuo, a spokesman for

Value America

(VUSA)

, a virtual department store that is sticking with an inventory-less strategy. Kuo says Value America has no plans to open bricks-and-mortar stores.

Amazon's Curry downplays the transformation. "It's not a change of heart," he says. "It made sense when we were a small start-up company to order books from a distributor and turn them around to the customer. As we've grown, it makes sense to have our own distribution centers so we have the largest number of books, videos or CDs on hand for shipment to customers as quickly as possible."

Nevertheless, those changes come with a hefty price tag. Shares of Amazon have been heading south since April, when they touched a 52-week-high of 221 1/4, amid concerns about the company's ambitious plans. Tuesday shares closed at 120 1/8. Just last week, Amazon said it was adding consumer electronics and toys to its increasingly eclectic product mix that includes books, music and videos.

Wednesday, Amazon will report its second-quarter results, in which the company is expected to record an operating loss of $75 million -- "by far the largest quarterly operating loss Amazon.com has had in terms of absolute dollars," wrote

Merrill Lynch

analyst Henry Blodget in an email to clients. He rates Amazon a buy and his firm has not performed underwriting for the company.

"Amazon's near quadrupling of estimated fiscal year 1999 operating losses should provide plenty of ammo for skeptics who believe the company will never make money," he added. "However, we continue to believe that aggressive investment is the best plan for the future."

Now some analysts are saying bricks-and-mortar could likely be one of the company's next big investments.

"I wouldn't be surprised if eventually you saw some agreement where Amazon either opened shops within an existing retail space, or opened a few flagship stores like

Gateway

is doing," says Sara Zeilstra, an analyst with

Warburg Dillon Read

. She rates the company a hold because of the company's heightened investments in both marketing and infrastructure, which she says could ultimately exceed $1 billion.

Amazon is just the latest example of how online and offline business models are merging, Zeilstra says. Six months ago, online drug stores swore to put bricks-and-mortar operations out of business. Today, most have joined forces with the very competitors they intended to defeat. Likewise, last Christmas found a number of venerable retailers pooh-poohing e-commerce as a passing fancy. This holiday season, most of them will have online efforts of their own.

Take

Circuit City

(CC) - Get Report

, which will soon allow customers to peruse the inventory of local Circuit City stores from the company's Web site, order online and then pick up the merchandise at the store. "This way you get immediate gratification, low prices and no shipping charges," says Morgan Stewart, a company spokesman.

Having a place where customers can drop off or pick up merchandise in the real world becomes increasingly important for big-ticket items, like consumer electronics, which Amazon has recently begun selling, because they carry hefty shipping fees.

"If they think they can serve their customers better, Amazon will do it," Warburg's Zeilstra says.

Even if that means going unplugged.