Report: Amazon plans to open bigger stores, kind of like department stores but smaller

After years of squeezing brick-and-mortar retailers, Amazon is reportedly poised to launch its own department stores — with a focus on apparel, electronics and household goods but in a scaled-down format.

An Amazon spokeswoman declined Thursday to address the report in the Wall Street Journal. "We do not comment on rumors and speculation," she said in an e-mail to the Washington Post, whose owner Jeff Bezos is the founder and executive chairman of Amazon.

The e-commerce giant, which last year had $386 billion in sales, has been expanding into physical retail in recent years, opening grocery stores, book shops and specialty pop-ups around the country. Analysts say its latest foray — while unexpected — provides an opportunity to reach customers in a new way.

"More stores bolster Amazon's whole ecosystem and flywheel," said Neil Saunders, managing director of GlobalData, a research and consulting firm that tracks the retail market. "They also allow Amazon to gather data and to understand consumer preferences better — understanding that can, in turn, be used to improve the whole proposition."

Traditional department stores, he noted, have been declining for years because of a "failure to innovate and adapt." Stores such as Macy's, J.C. Penney and Kohl's, which made up about 15% of retail sales in 1985, now account for less than 3%, Saunders said.

Amazon is said to be eyeing locations in Ohio and California for some of its first department stores, which will showcase the company's growing stable of private-label brands, though plans are still in flux, the Journal said, citing unnamed sources.

The pandemic has created new challenges for the nation's department stores, tipping a number of storied chains, including Neiman Marcus, J.C. Penney and Lord & Taylor into bankruptcy. Nearly 200 department stores have permanently closed since last year, and an additional 800 — or about half the country's remaining mall-based locations — are expected to shutter by the end of 2025, according to commercial real estate firm Green Street.

But for Amazon, this could be an opportunity to shake things up: Its 30,000-square-foot department stores would be about a third the size of a traditional mall anchor, mirroring plans by many of the country's retailers to open smaller, more easily-accessible stores.

Mall department stores were struggling. The pandemic has pushed them to the edge of extinction.

"If it gets rolled out in a serious way, it is very bad news for traditional department stores," Saunders said. "The lack of innovation by traditional department stores means their defenses are very weak, so the last thing they need is to fend off a new invader to their space."

Amazon, which has grown steadily during the pandemic, is expected to overtake Walmart as the nation's largest retailer by next year, according to estimates from J.P. Morgan. The e-commerce giant had $443 billion in annual sales as of June 30, compared with Walmart's $566 billion for the 12 months ending in July.

The Seattle-based company, founded in 1994 as an online bookseller, staked its foothold in physical retail with its 2017 takeover of Whole Foods Market. Since then, it has tried its hand at a number of store formats, including grab-and-go markets, mall-based pop-ups and even a hair salon in London.

Amazon's latest push into retail spaces comes as it confronts an increasingly antagonistic Washington — which is concerned with the company's power as both an online marketplace and a vendor — as well as intensifying pressure from workers and labor groups who have criticized working conditions at the company and its opposition to unionization.

Earlier this month, a National Labor Relations Board hearing officer found that Amazon improperly pressured Alabama warehouse workers to vote against joining a union and recommended that a new election be held. Amazon, the nation's second-largest private employer behind Walmart, has strongly opposed efforts by its American warehouse workers to organize. But the company's size and outsized role as the dominant e-commerce operator continue to draw in labor organizers.

Its reported expansion comes as some retail chains — having survived the financial shock unleashed by the coronavirus pandemic — are mounting a vigorous comeback. As many Americans work to reconfigure their social lives in the second year of the pandemic, department stores are cashing in on the increased spending. The sector, which saw sales plunge more than 40% early last year, is beginning to make up for some of those losses, according to monthly data from the Commerce Department.

On Thursday, Kohl's reported monster second-quarter results: Revenue soared 31%, to $4.45 billion, compared with the same period last year, during the first summer of the public health crisis. Profits swelled more than 700%, to $382 million. After exceeding analyst expectations, the company is raising its full-year forecast.

Macy's, too, is seeing huge gains as customers head back to stores and fill up online shopping carts. Goods that consumers tended to avoid purchasing during the initial bout of the pandemic, such as denim, luggage and dresses, saw a resurgence this quarter, the retailer said, while items that held strong continue to sell well, like fine jewelry and perfume.

Revenue rose 59%, to $5.65 billion, compared with the year-ago period, and the company climbed out of a $431 million loss to generate a $345 million profit. Like Kohl's, Macy's is also raising its financial outlook, banking on the momentum of an economic recovery.

Kohl's stock jumped 7.3%, to $55.63, after Thursday's results, while Macy's spiked 19.6%, to $21.61 a share.