Amazon's Big Data on Consumer Behavior Fuels its Entry into Urban Retailing

 The Wall Street Journal reports that Amazon is opening retail stores in cities.  On one level, this poses a puzzle because Amazon’s rise was fueled by its cost savings due to the fact that it is a virtual store.  Over the decades, Amazon has assembled a huge database about each of its customers.  Such data (and knowing where each of us lives) allows it to make educated predictions about what goods we will want to buy at its retail stores.  Amazon will stock their stores with such products.

So, the point of this email is that spatial coded micro data allows a retailer to pinpoint exactly what to have in inventory at each week of the year.  This creates gains to trade.  Consumers anticipating that the store will have what they are looking for will be more likely to go to the store.   Nearby firms to the physical Amazon stores will gain from the increase in walking traffic.  

The role of Big Data in fueling bricks and mortar retail optimization seems like a promising research topic.  The true urban CPI price index should decline.  Read this paper.

Handbury, Jessie, and David E. Weinstein. “Goods prices and availability in cities.” The Review of Economic Studies 82, no. 1 (2015): 258-296.