While doing some early Christmas this week shopping in Chicago, I had my mind blown. See if you notice what is taking place in the picture below.

What is going on here?

What is going on here?

Allow me to frame the scene. I’m standing inside a Crate & Barrel retail store on Michigan Avenue (don’t ask). I causally look outside. A UPS truck is parked at the curb; there are two guys pulling packages from a conveyor belt, which appears to be coming from the basement stockroom of the store.

Yes, you read that correctly. The packages are coming from the stockroom and being loaded onto the UPS truck.

This means that Crate & Barrel is using their stockroom located on Michigan Avenue (which is known to be one of the most expensive commercial streets in North America) as a warehouse/distribution center.

Maybe you’ve already be witness to this in other parts of the country, but I had not. USA Today had a piece on it last month, but I assumed it was only big box retailers like Walmart and Best Buy, who have the excess real estate and large stockrooms doing this.

But there I was standing on Michigan Avenue, watching Crate & Barrel loading packages onto a UPS truck. It blew my mind.

After I gathered my senses, (triggered by my wife tamping me on the shoulder and asking what the hell I was doing taking pictures of a UPS truck) something occurred to me.

Jeff Bezos, Amazon’s CEO, has openly stated that Amazon is considering brick and mortar stores:

We would love to, but only if we can have a truly differentiated idea.

One of the things that we don’t do very well at Amazon is do a me-too product offering. So when I look at physical retail stores, it’s very well served. The people who operate physical retail stores are very good at it.

The question we would always ask before we would embark on such a thing is: what’s the idea? What would we do that would be different? How would it be better?

We don’t want to do things because we can do them. We want to do something because it’s going to — we don’t want to be redundant.

Every time I heard someone talk about Amazon considering brick and mortar locations, I’ve thought to myself, “Well, that’s it. Amazon’s gonna make their first big mistake.”

Amazon has basically put brick and mortar bookstores out of business – think Barnes & Noble, Books-A-Million, Borders – they’re all toast. And big box electronic stores like Best Buy are on life support. Amazon has been able to do this by not having the expense of a retail presence (think rent, utilities, personnel), enabling them to cut prices and accept razor thin (or even negative) margins.

Why the heck would Amazon consider brick and mortar, when the absence of bricks and mortar has been a key to their very success???

As I left Michigan Avenue, here’s what occurred to me.

What other big ideas is Amazon striving for?

Sunday Delivery? Yep, it’s happening now, courtesy of your very own US Postal Service.

Same Day Delivery? Well, not yet. But I regularly get two-day delivery with my Prime membership. Who is to say same day is unachievable considering what they’ve been able to pull off in recent years.

What is Amazon doing to achieve Same Day Delivery? Investing billions of dollars in dozens of order fulfillment centers across the US to be closer to their customers.

Now ask yourself, What’s the next logical step to get even closer to their customers?

Brick and mortar retail stores.
(There is an entire sales tax debate and consideration for these locations I am going to completely avoid here…)

Is it all coming together?

Let’s go back to what I just witnessed. A pure-play brick and mortar showroom store on Michigan Avenue shipping boxes from their basement stockroom.

Does this mean, the brick and mortar guys beat Amazon to the punch? Remember what Bezos has said when asked about retail:

We would love to, but only if we can have a truly differentiated idea.

Maybe differentiation in this instance is not a retail mini-distribution hub for Amazon. It’s already being done.

Maybe it’s same day delivery, who knows. Jeff Bezos continues to amaze me.

Maybe next year I won’t have to go to Michigan Avenue. Instead, a drone will deliver my wife’s new throw pillows and save us the trip.

Let’s just say I’ll be renewing my Prime membership just in case.

Share →

Lease vs Buy Analysis Template

This Excel model allows anyone to compare leasing vs owning office, retail or industrial space. Proven to be simple and easy to use, this template has underwritten billions of dollars of transactions.

2 Responses to Michigan Avenue: The next retailer warehousing and distribution hub?

  1. Howard Kline says:

    Good article and timely subject. The only problem with this scenario is the cost of real estate.That may not be an issue however, if the landlord does not charge Crate & Barrel for the basement storage space.

  2. Dominic Zabriskie says:

    Howard, The cost of the real estate is certainly a consideration, but this strategy could still make sense even if they are being charged for the basement storage space (if I had to bet, they are being charged).

    If this space is simply being underutilized, they save a ton of money on shipping and distribution costs by sending trucks to their stores and having UPS pick it up closer to the end customer. Usually shipping is either free (over a certain order amount) or a flat fee and the retailer absorbs any overage. By having UPS make shorter runs, this mean their shipping charges could be lower than having UPS pick it up at their distribution center, which could be states away.

Leave a Reply to Howard Kline Cancel reply