Amazon has closed three of its Fresh "just walk out" grocery stores in the UK, including the first branch to open outside of the US, raising question marks about its commitment to the concept as well as its thorny relationship with bricks and mortar.
The US e-commerce giant confirmed that after an assessment of its "portfolio of stores" it was closing its branches at Wandsworth and East Sheen, as well as its first to open in the UK in March 2021 at Ealing Broadway. All the locations are in west London.
The Seattle-headquartered group is no stranger to shuffling its pack of physical stores and moving quickly when a location is struggling.
In January it added two more stores in Greater London, opening branches in East Croydon and Monument, but closed another in Dalston, Hackney, just 18 months after it launched.
But the decision to scale back from 20 to 17 with no new stores announced fits with a wider recent trend of scaling back its physical footprint, and points to Amazon's ongoing difficulties with its bricks and mortar strategy in some areas. It also suggests there should be a major re-evaluation of the extent of its ambitions in the UK for its Fresh stores concept.
In 2022 reports surfaced that it was planning to have opened 260 of the stores in the UK by 2024.
Amazon declined to comment on the reports, which were based on an internal memo cited by various media and stated that 60 new stores were planned in 2022, 100 in 2023 and more than 100 in 2024. An Amazon spokeswoman told CoStar News at the time that the online giant does not comment on “rumours or speculation”.
In February in its fourth-quarter earnings call Amazon had confirmed it would be shuttering some of its Amazon Fresh supermarkets and halting the chain's rollout, as well as closing a number of Amazon Go convenience stores in the US.
Amazon, which bought the Whole Foods Market chain for $13.7 billion in 2017, has been reducing its physical footprint in other areas. In March of last year the company shut 68 stores representing three chains globally - its Amazon 4-star, Amazon Pop Up and Amazon Books locations in the US and the UK.
In the UK analysts have said the group has in part struggled to achieve the high margins needed to justify the investment in the pioneering technology needed for its cashier-less stores.
Jonathan De Mello, founder and CEO of retail adviser De Mello Consulting, says Amazon had incurred significant store fitout costs given the embedded technology whilst selling grocery, which ultimately is a high volume but low margin product.
The stores use Amazon’s Just Walk Out technology. After scanning in using a smartphone QR code, customers can buy food and daily offers, including the private label "by Amazon", then walk out of the store without having to visit a cashier. Billing and receipts are handled through the customer’s Amazon account shortly after the visit.
"Amazon clearly have not achieved high volumes given relatively low observed footfall in their stores, and this has meant that these stores have struggled to pay back the significant initial investment they made," De Mello argues.
De Mello expects more stores to close, with lease restrictions preventing further announcements.
He also suggests Amazon did not do its due diligence thoroughly enough on how competitive the neighbourhoods are that it has opened in.
"Amazon Fresh have opened stores in highly competitive areas, or areas that demographically don’t fit with the generally higher price points they offer relative to competitors. Better strategic research would have helped them to avoid such mistakes. It appears their approach was opportunity/supply side led, as opposed to strategically led."
Amazon said in a statement it was committed to opening new Amazon Fresh stores.
It said: "Like any physical retailer, we periodically assess our portfolio of stores and make optimisation decisions along the way.
"While we decided to close three Amazon Fresh stores, it doesn't mean we won't grow – this year, we will open new Amazon Fresh stores to better serve customers in the greater London area."
It added it was "committed to our investment in grocery and, as we grow, we'll continue to learn which locations and features resonate most with customers".