Amazon to close low-performing Fresh and Go retail locations

Amazon is pausing the rollout of its Amazon Fresh retail stores while it re-evaluates the concept's economics, the company announced recently.

"We're doing a fair bit of experimentation today in those stores to try to find a format that we think resonates with customers," said Andrew Jassy, president and CEO of Amazon, during the company's fourth-quarter conference call.

The company has assessed its portfolio of Amazon Fresh and Amazon Go stores and decided to "exit certain stores with low growth potential," Brian Olsavsky, senior VP and chief financial officer, said.

It was not clear how many stores will be shuttered or how many planned locations would be abandoned. Amazon seemed to delay several store openings in recent months.

The company has 44 Amazon Fresh locations and 28 Amazon Go stores in the U.S., according to its website. Both the Fresh stores, which are similar to traditional supermarkets, and the Go stores, which are cashier-less convenience stores, had been widely considered a potential opportunity for the ecommerce giant to disrupt the traditional retail grocery space.

Amazon took a $720 million impairment charge in the fourth quarter related to property, equipment and operating leases at its physical stores, Olsavsky said.

Related:Whole Foods Market plans aggressive growth

"We continue to believe grocery is a significant opportunity, and we're focused on serving customers through multiple channels, whether that's online delivery, pickup or in-store shopping," he said.

In response to an analyst's question, Jassy said grocery remains "an important and strategic area" for Amazon.

"It's a very large market segment, and there's a lot of frequency in how consumers shop for grocery," he said.

Amazon's online grocery business "continues to grow at a rapid clip," Jassy said, but remains centered around shelf-stable items such as paper products, canned goods, pet supplies, health and personal care items. The online business lacks a significant share in perishables, however, which he said calls for the need for physical stores.

Amazon's Whole Foods Market banner continues to grow, and made progress on its profitability in the past year, he said.

"I like what I see in front of it," he said. "It's a good business for us in the grocery space."

While Whole Foods provides premium and organic offerings, the company sees Amazon Fresh as providing more of a mainstream physical grocery store experience, Jassy said.

"We've decided over the last year or so that we're not going to expand the physical Fresh doors until we have that equation with differentiation and economic value that we like, but we're optimistic that we're going to find that in 2023," he said. "We're working hard at it. We see some encouraging signs. And when we do find that equation, we will expand it more expansively."

For the fiscal year that ended Dec. 31, Amazon reported that sales in its physical stores increased about 11.1% over year-ago level, to about $19 billion. That figure does not include orders placed online for pickup or delivery.