Last week, Amazon announced that it was closing its 87 pop-up stores in the U.S., located in malls, Kohl’s, Whole Foods and other shopping centers. The pop-ups, many in the form of kiosks, gave shoppers an opportunity to test out Amazon’s hardware (Fire tablets, Kindle e-readers, Echo smart speakers and software such as Prime Video, Audible and Kindle Unlimited).

At the same time, Amazon is rapidly expanding its retail footprint through Whole Foods (whose 475 U.S. locations it is focusing on instead of its lower-priced, smaller-format offering, Whole Foods 365), Amazon Go (which opened 11 locations in the last year), Amazon Books (which has 19 current locations), Amazon 4-Star (which has 3 current locations), and a new small-format grocery store that the company is currently testing.

It’s clear that Amazon knows retail will be a big part of its future (the company said this much in their release about pop-up closures), but its decision to pull out of Kohl’s and Whole Foods are worth further examining to understand more about Amazon’s rapidly evolving retail strategy.

Whole Foods

When Amazon bought Whole Foods, it didn’t waste a minute letting grocery customers know that big changes were ahead. Amazon Prime signage descended on the stores offering discounts and rewards, and Amazon devices such as Kindles and Alexa started commanding precious space that might have previously been used for cheese and olive tastings. Amazon Lockers appeared near the front of stores, allowing customers to pick up their online purchases in more locations, which is especially relevant to urban shoppers who don’t have doormen. Whole Foods instantly looked and felt different—it started to feel more like Amazon.com.  

From Amazon’s perspective, these moves made sense. Whole Foods had prime real estate and millions of shoppers moving through them each year—an opportunity for Amazon to get in front of even more eyeballs. But removing the pop-ups from Whole Foods marks the first retreat of the Amazon-Whole Foods integration. There are a few possible reasons why, which are not mutually exclusive:

  • Amazon smart home items were not selling in Whole Foods because shoppers were not interested in buying hardware products during food runs.
  • Amazon wants to have dedicated spaces for its smart-home products and jamming them into small spaces at Whole Foods was not working.
  • With the limited space in a physical store, compared to Amazon’s semi-unlimited online shelves, Amazon found that using Whole Foods for Prime Now and AmazonFresh delivery and logistics was a better use for the space it was dedicating to smart home products. (The company plans to expand the size of delivery and logistics hubs at Whole Foods up to 45,000 square feet.) Along the same lines, space might be better used for Amazon lockers and Prime, which helps drive Amazon’s core flywheel, versus smart home products which could come secondary to getting someone into the ecosystem.
  • Converting Whole Foods customers into Prime members was working so well (and potentially Prime customers are more likely to buy smart-home devices on their own versus needing dedicated space to convince them) that Amazon wants to double down on more simplified messaging in the grocery stores, versus bombarding shoppers with endless varieties of messages.

We will likely glean more of the real reasoning for the pop-up closures over time. As for now, having a slightly smaller Amazon presence in Whole Foods will be refreshing, even though it likely won’t last long.

Kohl’s

In fall 2017, Kohl’s entered into a partnership with Amazon to open pop-ups selling smart home products (initially at 10 stores) and to accept Amazon returns (initially at 82 stores). Both companies saw positive results throughout 2018, and ramped up the partnership for the holidays, expanding the pop-ups to 30 stores. Kohl’s also said the partnership is boosting foot traffic, giving weight to the theory that if customers can return products in the same place where they can shop for new ones, they take advantage of the opportunity.

Now that Amazon is pulling out the rug from underneath Kohl’s—much like it has treated many of its vendors—it leaves the traditional retailer in a much harder position. Amazon’s experience at Whole Foods likely informed its departure from Kohl’s, where the company doesn’t control the square footage and the placement of its products. In centralizing its offline efforts in owned retail and Whole Foods instead of at third-party retailers, Amazon is able to control more of its shopping experience, a strategy that mirrors its pivot to fulfilling more third-party goods in other parts of its ecosystem. However, Amazon’s decision (for now) to leave the returns partnership with Kohl’s in place indicates that it wants wider returns reach to continue driving Prime sign ups. Even so, Kohl’s is still planning to sell Amazon smart home products at over 200 locations, just not in their own dedicated spaces.   

Through it all, Amazon sees a big future for its offline retail, much of it driven by its online ecosystem. These recent moves show that the company is convinced it has what it needs to build this footprint on its own, increasingly relying on itself, often at the expense of others. That’s the Amazon way.