Amazon and the Future of Retail

The growth of Amazon and other online retailers questions the survival of bricksand-mortar retail. We show that, in response to the online trend, offline retailers – especially smaller ones – optimally follow a specialization strategy, in particular specialization in narrow niches. This may lead to an offline long tail that is thicker than the online long tail, contrary to existing research. Offline specialization benefits consumers; in fact, consumers would benefit from more specialization than it results in equilibrium. We discuss this and other relevant comparative statics based on a simple model of consumer demand and retail design. We complement our theoretical analysis with corroborative empirical evidence. To do so, we employ a large proprietary dataset obtained from a major US publisher detailing all sales to book retailers (both online and offline) over the 2016-2019 period.