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What's behind Amazon's push into physical stores

As traditional retailers shutter stores under the onslaught of ecommerce, one U.S. company keeps throwing up the bricks-and-mortar: (AMZN). 

The online retail giant recently unveiled plans to open bookstores in Chicago and Portland, in addition to the store it opened in its Seattle hometown last year. The company also plans to open locations in San Diego and New York City.  

Amazon, as is its practice, isn’t divulging many details about its strategy to expand in the real world.  In a speech at the company’s annual meeting earlier this summer, CEO Jeff Bezos said he isn’t sure how many stores that Amazon will open.

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“In these early days it’s all about learning, rather than trying to earn a lot of revenue,” Bezos said.

One reason why Amazon, which caused disruption galore when it launched as an online book vendor in 1995, might be building real bookstores? To finish the job it started -- independent booksellers generated about $800 million in sales last year, “a nice scrap in the corner that Amazon will lovingly go after,” Jenn Risko, co-founder and publisher of the industry site Shelf Awareness told GeekWire earlier this year. 

Meanwhile, despite the media focus on ecommerce, about 92 percent of all retail sales continues to be transacted inside physical stores, a reality Amazon can’t afford to ignore, said retail consultant Howard Davidowitz, head of Davidowtiz & Associates.

“It makes total sense to me,” he said.

Physical stores might also help Amazon sell its own gear, such as the Echo digital personal assistant, while allowing customers to pick up and return items ordered online, said Morningstar analyst R.J. Hottovy, who considers the company’s stock, which closed Friday at a whopping $769, undervalued even at its rarefied price-to-earnings ratio of 192.

Amazon has been blurring the line between ecommerce and traditional retail for a while.  It offers grocery delivery services through its Amazon Fresh and Prime Now offerings.  The company also is rolling out a line of private label branded products, including perishable goods.

After being dogged by criticism for its inconsistent profitability for years, Amazon can now afford to be patient with its physical stores. Not only is the company benefiting from the boom in ecommcer, but its industry-leading cloud computing business continues to grow quickly. The company’s Amazon Prime service, where people pay $99 annually to get two-day shipping and access to its original content, is also a hit, attracting 60 million or so.

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