Marketplace Briefing: The rise of ‘inconvenience stores’ is helping Amazon’s Everything Store
This is the latest installment of the Marketplace Briefing, a weekly Modern Retail+ column about the ever-changing e-commerce marketplace landscape. More from the series →
These days, the phrase “convenience store” feels like something of a misnomer as more everyday essentials are imprisoned behind walls of security glass.
In retailers’ eyes, it’s a necessary measure to curtail retail theft, a boogeyman that has plagued the broader industry for the last few years, according to company executives on earnings calls. But by locking up products, stores have become museums. Except instead of the priceless “Mona Lisa” behind safety glass, it’s a $5 tube of toothpaste or a $2 protein bar. Frustrated shoppers who have to ring a bell and wait for a harried salesperson to assist them are increasingly turning to online stores.
All told, it’s paying off in a big way for online marketplaces like Amazon, which saw more consumers turn to it for everyday purchases, according to its most recent earnings. Amazon isn’t alone. Its biggest rival Walmart said after it reported second-quarter earnings that its e-commerce operations are increasingly driving revenue for the company as consumers turn to it for both convenience and price. That trend is only likely to continue as beleaguered retailers, including CVS, Walgreens and Rite Aid, shutter stores amid lagging sales.
There’s plenty of data to back this up. More than a quarter of 5,000 shoppers surveyed by research firm Numerator said a retailer loses their purchase when items are locked up, according to a report published Nov. 4. While 17% say they will switch retailers if items are locked up, 10% said they will abandon their purchase altogether. Shoppers are even less willing to wait when everyday goods are locked up. Only half of shoppers say they’ll wait for assistance with bath and body products. The metrics are about the same for makeup and cosmetics.
It’s not as much of a hassle for consumers to wait around for stores to unlock items like electronics because such purchases are less frequent, according to Neil Saunders, managing director at GlobalData. But when shoppers pop into a convenience store to stock up on everyday essentials, they want to get in and out as quickly as possible. If roadblocks are added to that experience, shoppers will find another alternative, he said.
“It’s understandable that retailers want to reduce theft, but at the same time, they’re hammering their own sales and pushing customers online,” Saunders said. “The problem is that once the customer is pushed online and creates a new habit of buying these things from Amazon, it’s very difficult to get them back into your store.”
‘Forlorn physical venues’
On an earnings call after Amazon reported third-quarter earnings last week, executives said the company has seen a rise in sales of essential items, including beauty and personal care products.
“While these items often have a lower average selling price, the strength in everyday essential’s revenue is a positive indicator that customers are turning to us for more of their daily needs,” Brian Olsavsky, the company’s CFO, said on a call with analysts. “We see that when customers purchase these types of items from us, they build bigger baskets, shop more frequently and spend more on Amazon.”
During Amazon’s summer Prime Day, household staples like trash bags and batteries were among the top-selling products, Modern Retail previously reported.
On the same earnings call, CEO Andy Jassy took aim at locked-up merchandise at pharmacy and convenience store chains, which he described as “forlorn physical venues with much of the selection behind locked shelves.” He added, “We think customers deserve better.”
Amazon attributed the rise of sales of everyday essentials to the company’s fast delivery speeds. To Jason Goldberg, chief commerce strategy officer at Publicis Group, this creates “a new kind of flywheel at Amazon.” As he put it, “That customer that buys those everyday essentials is also more likely to do more of their more profitable spending with Amazon, as well, and so it sees the lifetime value of those customers go up.”
Yet as Amazon’s sales of everyday essentials rise, it faces stiff competition from Walmart’s growing commerce business. On a call with investors in August after the retailer reported second-quarter earnings, Walmart’s CFO John David Rainey said consumers are increasingly turning to its online web store for its convenience.
“Certainly, we see an outsized contribution from our e-commerce growth, which I believe really speaks to the fact that customers are coming to us as much for convenience as they are for price,” he said.
Closing time
As if locked-up merchandise wasn’t enough of a deterrent, several drug store chains have rolled out plans to shutter some store locations, a move that will create even more inconvenience for shoppers.
In mid-October, Walgreens announced the closure of 1,200 stores in the next three years due to underperforming sales. The chain plans to close 500 stores in 2025 and another 700 by the end of 2027. The company operates around 8,500 stores in the U.S. Nearly three in five consumers say they would be moderately or significantly impacted by the closure of their local Walgreens, according to a report published on Oct. 31 by Numerator. While most consumers surveyed said they plan to shift their purchases to another drug store if their local Walgreens closes, 15% said they would buy more goods online.
Walgreens isn’t alone. In 2021, CVS announced it would close 900 stores in three years. Last year, Rite Aid filed for bankruptcy. The company has stated it will emerge from bankruptcy with about 1,300 stores.
To Goldberg, these store closures illustrate how merchandise behind plexiglass barriers winds up hurting sales more than helping. To be sure, barricaded products are not the only reason.
All three retailers have faced a crush of opioid lawsuits totaling billions of dollars. Locked-up merchandise aside, sales have been flagging at drug chains for years due to rising competition from the likes of Amazon and Walmart, which have both worked to boost their personal care, grocery and pharmacy offerings. Walmart, for its part, has also focused on growing its e-commerce business to compete with Amazon.
“Amazon’s retail sales are growing three times faster than the industry average,” Goldberg said, citing Amazon’s latest earnings numbers and Department of Commerce data. “Where are all these extra everyday essentials sales that Amazon’s getting coming from? A very reasonable hypothesis is Walgreens, CVS and Rite Aid.”
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