The Amazon Effect   //   October 11, 2021

‘A little bit of an anomaly’: How 4-Star stores fit into Amazon’s physical retail strategy

Amazon is taking its 4-Star concept store abroad.

Last week, Amazon announced will open its first 4-Star store — which features an eclectic mix of items that are highly rated on the Amazon platform — in the UK.

That is notable for a few reasons. Amazon’s 4-Star stores are kitschier and don’t get as much attention as some of its more high-tech concepts, like Amazon Go. According to some retail analysts, Amazon’s 4-Star stores are mostly frequented by tourists — a demographic that Amazon’s other stores don’t court quite as heavily. Yet 4-Star offers two benefits that none of Amazon’s other physical store concepts do yet: one, it’s a showroom, and two, it doubles as a fulfillment center. While it might not be as thematically specific as Amazon’s other retail concepts, it is proving to be a model for how Amazon can blend e-commerce and physical retail going forward.

Amazon opened its first 4-Star store in 2018. It was one of the first brick-and-mortar stores that Amazon opened, after its line of Amazon Books stores, and it functioned largely as a concept store — a way for Amazon to experiment with physical retail as a channel. Amazon has more than 40 4-Star Stores, and a large group of chain stores under its belt — including Book stores, Fresh grocery stores, Go convenience stores and a forthcoming line of department stores.

The idea of the 4-Star Store is that Amazon curates items that are rated above four stars on the Amazon platform and are popular in a given area. It is designed to facilitate product discovery, something that has always been a struggle for Amazon. The Amazon platform is efficient for people who know what they want, but it is less skilled at helping customers browse through a wide range of product types.

“The 4-Star store can’t lose,” said Holden Bale, head of commerce at the digital agency Huge, “because it’s just a broad brush of merchandise that they know is high-indexing in a location.”

Whereas other retailers might worry that customers would use a show-rooming concept to comb through physical items that they’ll then buy on Amazon, for Amazon, people can “think of it to a certain extent almost like a marketing expenditure,” said Bale. Amazon is advertising products it can just as easily sell to customers online versus in the store.

Yet 4-Star stores also serve a key role in fulfillment. Customers who buy on Amazon — if they live near a 4-Star store — can save money by shipping products to a 4-Star store, rather than directly to their house. Amazon restricts which types of products that customers can ship to a 4-Star store — they’re generally smaller items — but when customers do choose to pickup at a store, Amazon saves money and a logistics headache.

One reason Amazon is expanding its 4-Star store is that it will mean more people can select to pick up products at a 4-Star Store. “If you can get a small, even a rounding error of consumers in a given area” to ship their products to a 4-Star Store instead of opting for home delivery, “it is a huge financial unlock,” said Bale. “You treat the physical store almost like it’s a mini distribution center, you treat it like a node in the supply chain.”

That makes 4-Star stores useful to Amazon, even though they might not have quite as cohesive a concept as Amazon’s other retail shops. Elaine Kwon, managing partner at the e-commerce management firm Kwontified, said that the 4-Star Store, based on her observations, seems to have the highest appeal among tourists.

In the context of Amazon’s larger physical retail footprint, she said, it is “in my opinion is a little bit of an anomaly because it’s more of a tourist attraction.” Ultimately, “I feel like maybe the 4-Star store has the least likelihood of lasting because it serves as a novelty store,” she said. “That’s the store that’s going to need to pivot in five years.”

But that pivot, if it happens, might not need to come for a while. While Bale said that “I think at some point, one would expect to see a rationalization and a consolidation of their offerings” in physical retail, he said, “they don’t necessarily have to figure it out right now because it’s all pretty successful and it’s all growing.”