Dive Brief:
- Amazon is running into some problems with the physical grocery operations it gained when it acquired Whole Foods. The retail giant’s strategy — which includes adding new stores, expanding pickup lockers and launching click-and-collect — is being stonewalled in some shopping centers due to legal clauses in competing retailers’ lease agreements, reports Reuters.
- Among the retailers stretching their legal rights are Target, Bed Bath & Beyond, Best Buy and even new entrant Lidl. These retailers typically have clauses written into their lease agreements that allow them to limit what Amazon can do with nearby Whole Foods stores, according to Reuters.
- Among the various issues the formerly online-only Amazon is encountering in the physical world: restrictions on where it can open new stores; limits on merchandise categories it can offer; and bans on Amazon Lockers and delivery operations.
Dive Insight:
Dealing with the fine print of lease agreements is uncharted territory for Amazon, which is pretty much accustomed to writing the rules in the virtual retailing world. Now competitive retailers are leaning on legal entitlements written into rental leases, which could deter Amazon’s strategy to marry its online expertise with newly acquired Whole Foods.
The retail giant has big plans to disrupt retail grocery and will be a key force driving more grocery sales online. Packaged Facts forecasts Amazon’s food and beverage sales could top $30 billion by 2025 with the projections based on its omnichannel grocery strategy that marries online and offline assets.
Many thought it would be smooth sailing for Amazon to steamroll the competition as it embarked on its omnichannel expansion. At the core of its strategy would be leveraging some 460 Whole Foods locations, turning the physical assets not only into pickup points for Amazon orders placed online but also as fresh foods fulfillment “depots” for its Amazon Fresh home delivery program. Until, that is, some of these lease agreements were brought into play.
But don’t count the retail giant out yet. Facing such restrictions means Amazon may just need to get more creative in how it uses existing physical assets and plans for new stores. If nothing else, Amazon is a hugely creative and disruptive force.
The retailer may need to make some concessions in areas where current Whole Foods are located and up against leasing restrictions. But expect that the company’s legal team will now scrutinize each and every existing and future lease agreement.
The result could mean breaking leases and relocating to areas where the company wouldn’t be bound by such restrictions. It could mean a transition from a leased to owned property strategy. It could mean building freestanding stores in lieu of mall or other shopping center locations. It could mean more negotiations with other retailers to derive at terms agreeable to all involved parties.
But competing retailers also should now begin to think of ways to leverage Amazon’s scale to their benefit. Some may actually find shopper traffic created from Amazon Lockers located nearby beneficial to their own operations. Dollar stores, for example, have deployed a similar strategy for years seeking locations near Walmart and its huge traffic draw.