Amazon invades the suburbs: good news for retail investors?

Amazon (NASDAQ: AMZN) has already done a great job of building and maintaining a strong customer base online. But the distribution giant will not stop there.

Amazon has been growing its physical footprint for years, from buying and opening groceries to experimenting with deals like clothing. And he also made a point of integrating technology to make the shopping experience more enjoyable and convenient for consumers.

The advantage of Amazon Go stores is that they don’t have a cashier. Consumers simply fill their baskets with the items they want and use an app to check out. Amazon Go offers a range of groceries and basic necessities. Think of it as a convenience store, only with premium offerings.

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Until recently, Amazon Go stores were limited to big, bustling cities like New York, Seattle, and Chicago. Now the online giant is looking to expand its network of Amazon Go locations – but it’s targeting a surprising string of neighborhoods.

Shake up the suburbs

Amazon has announced plans to introduce Amazon Go stores in suburban markets. Stores will work the same way – payment will be through an app so customers can walk in, out and on their way.

The main difference, however, is that the suburban version of Amazon Go will be larger – around 6,000 square feet compared to the 1,000-2,000 square foot locations found in cities. Given the cost of real estate in the suburbs, this adjustment makes sense.

Now, some investors might wonder why Amazon would choose to take a store model clearly designed for cities and try it in the suburbs. But the logic is actually quite simple.

With so many people working remotely, Amazon hopes its suburban expansion will help it grow its customer base. And those who get used to shopping in suburban Amazon Go stores can continue this practice once they are called back to their municipal offices if there is an Amazon Go store nearby.

The real estate impact

Many stores have closed permanently as a result of the pandemic. If Amazon’s expansion is successful, commercial landlords may have more opportunities to lease vacant space.

The good news about Amazon’s latest piece is that it shouldn’t starve supermarkets, which typically serve as anchor tenants for suburban malls. Amazon Go has a much smaller selection of products than larger grocery stores. And while some customers may appreciate the convenience of cashier-less shopping, that may not matter so much to others given that self-checkout is now a mainstay in most major supermarkets.

Additionally, the Amazon name could attract customers to adjacent businesses around the burbs, helping to ensure their self-reliance. So on balance, real estate investors could be winners from Amazon’s expansion, that is, if it turns out to be profitable.

Although Amazon clearly has a strong history of success in its various businesses, opening a string of glorified convenience stores in the suburbs is a somewhat dicey move. Suburban consumers may not appreciate the opportunity to sacrifice selection for faster checkout, so it will be interesting to see how well Amazon Go performs in its new locations.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.