Amazon opened its first physical bookstore last fall — somewhat ironically in a former Barnes & Noble location — in an upscale shopping mall in Seattle.

For a while the store flew under the national radar, viewed by many as a side project of little consequence. What import was a single store in the company's hometown of Seattle? But those who know Amazon recognized it as a possible attempt by the company to reach an understanding of how the online and physical worlds can intersect to grow its business.

What a Data-Driven Bookstore Looks Like

From the outside, the store looks no different than any other, but inside the differences abound — from viewing a book’s cover as opposed to its spine, to the customer review cards culled from Amazon.com, to the lack of price tags. Kiosks are available to check prices, as is Amazon.com. And those prices are identical to what’s available online. The lack of price tags is especially interesting in light of Amazon's dynamic pricing, where it changes prices on items significantly more frequently than any other online retailer.

The bookstore carries a relatively small, 5000 to 6000, selection of titles chosen based on a combination of Amazon.com’s 5-Star rating scale, Goodreads, a social book review site Amazon acquired in March of 2013, and of course Amazon's editors and curators. No books with lower than a 4-Star rating make the cut. This data-driven approach is a far cry from a traditional bookseller, but Amazon is far from tradition-bound as its short history has shown. 

The store is also a showcase for its own electronics like Kindle and the Fire Tablet. This offers customers their choice of either traditional books or electronic readers, both of which benefit Amazon.

Spilling the Beans

So how does Amazon measure success at its new store? While no initial plans were announced to expand beyond this single location — surprise, surprise — within the last week one opinion has emerged that should have other bookstores shuddering.

During his company’s recent earnings call, the CEO of mall operator General Growth Properties, Sandeep Mathrani, mentioned that Amazon now has plans to open over 300 bookstores across the US. Now why he chose to use his earnings call to mention this tidbit about a company other than his own is not clear, perhaps it was meant to assuage investors that the shopping mall still has legs, but Amazon clearly was not happy about these reports and has labeled them “misleading.”

While Mathrani has since backtracked on his comments, his clarification does not negate the possibility of more bookstores, only that his comments did not "represent Amazon's plans." 

If the story is accurate, and General Growth Properties CEO did spill the beans, one has to wonder how this will impact them (e.g. will Amazon look to site its stores in the locations of General Growth Properties’ competitors)?

The possibilities this opens up for Amazon, if true, would appear to be significant and likely why it is none too happy that someone outside of the company announced the plan. (Amazon is notoriously secretive about its plans, which is why little if anything gets telegraphed by anonymous internal sources.) Beyond the opportunity to sell more books and devices, these stores can become Amazon hubs in the cities/towns they are located in. 

It's hard to fully grasp how this will work if it comes to pass: will people buy online pickup in store (BOPiS) similar to other retailers, will these stores be used to manage returns (this would enable customers to speed the delivery process back to Amazon as well as lower its costs), will they do both or something entirely different that we don’t currently see?

It Pays to Be Bold (if You're Amazon)

While hard to predict what Amazon’s plans are — and it's not divulging — the stores are a logical extension of its business and one that many people have been expecting. While some people will cry foul, didn’t Amazon use online to erode bookstores over the last 20 plus years, clearly its business model has changed. Management has shown itself more than willing to consider just about any opportunity to grow its business even it means contradicting a previously held position. 

It's this willingness to take bold, but calculated risks that its competitors should be most concerned about. 

It's like watching an elementary school student play chess against a master: the outcome is known, but we watch to see just how it will unfold. Stay tuned because this will have major ramifications if Amazon Books is coming to your neighborhood.