Speculation that Amazon is pulling back on brick-and-mortar expansion was confirmed last Thursday when the retailer said it plans to close Amazon Fresh and Amazon Go physical stores and pause new Fresh openings.
The company announced it decided to exit “certain stores with low growth potential” during its fourth-quarter 2022 earnings call and will take an impairment charge of $720 million on capitalized costs and associated values of its leased buildings in Q4.
“We continue to believe grocery is a significant opportunity, and we're focused on serving customers through multiple channels, whether that's online delivery, pickup, or in-store shopping,” said CFO Brian Olsavsky.
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The announcement comes just weeks after the retailer said it will cut 18,000 jobs, a bigger number than it initially said it would be eliminating late last year. It also comes on the heels of news that Amazon is nixing free Amazon Fresh grocery delivery for Prime users on orders under $150.
“We're continuously refining our store formats to find the ones that will resonate with customers, will build our grocery brand and will allow us to scale meaningfully over time,” Olsavsky noted.
Amazon CEO Andy Jassy, who joined his first Amazon earnings call and noted he might jump on calls from time to time, said grocery is an “important and strategic” area for Amazon and that the company believes that over time, grocery is going to be omnichannel.
“There are going to be a lot of people that order their grocery items online and have it delivered to them, and there are going to be a lot of people who continue to buy in physical stores.”
Jassy pointed to the health of Whole Foods Market, which he said is a significant-sized business that's continuing to grow, and that he likes the progress that business has made on profitability in the last year (Amazon purchased Whole Foods in 2017). Yet, he noted “if you want to have a mass physical store offering, you need a different offering,” and that’s what Amazon has been working on with Amazon Fresh.
“We're doing a fair bit of experimentation today in those stores to try to find a format that we think resonates with customers. It's differentiated in some meaningful fashion and where we like the economics. We've decided over the last year or so that we're not going to expand the physical Fresh doors until we have that equation with differentiation and economic value that we like, but we're optimistic that we're going to find that in 2023.”
While Amazon is halting Amazon Fresh expansion, it’s not laying plans to rest. When it finds the right equation, it will expand, Jassy said.
“I think we're building a pretty broad grocery network across online and physical, and you're going to see us continue to work on it.”