Dive Brief:

• Amazon, already a headache for the likes of Macy's and Kohl's, is planning a fleet of stores merchandised with a varied assortment, including apparel, home goods and electronics, and its own private labels, according to the Wall Street Journal, citing unnamed "people familiar with the matter."

• The report compares the model to a department store, but, at about 30,000 square feet, the planned locations would each be a fraction of the size of most U.S. department stores.

• The plans are in flux, per the Journal's sources. "We do not comment on rumors and speculation," an Amazon spokesperson said by email Thursday.

Dive Insight:

Amazon's disruption of retail has long extended beyond the internet to challenge physical stores too, steadily cutting into retailers' market share in a variety of categories. That's driven several old-school retailers, including department stores, to expand their online reach and better leverage their physical stores for specialized services — from practical operations like fulfillment and curbside pickup to in-store customer experiences.

But the e-commerce giant hasn't really conquered brick and mortar. Its 11% year-over-year increase in its physical store sales during the second quarter was an anomaly in a string of declines. Its bookstores and 4-star stores have garnered lackluster reviews from some analysts and consumers. Moreover, the comparison to department stores is a bit off, given the reported size and many unknowns.

"Very unclear what they are doing and where — and 30,000 feet does not make a departments store," Nick Egelanian, president of retail development firm Siteworks​, said by email. "That's a Marshall's." 

That doesn't mean that retailers, including department stores, should rest easy, however. Credit Suisse analyst Michael Binetti flagged the news as negative for department stores, writing in a client note that, while it's not clear how well Amazon could execute such a plan, or how big its scale might be, the effort "adds another well capitalized competitor to a sector already losing share to digital natives & new channels (resale, rental)."

GlobalData Managing Director Neil Saunders also said that department stores should be especially worried about Amazon developing stores like these.

"Amazon is light years ahead in its thinking and while it doesn't get everything about physical retail right, its Amazon Books and Amazon 4-Star shops have been popular," he said by email. "These are obviously smaller format shops, but their format is much nicer than traditional department stores. In a way, this is a bit like when Apple entered the retail space and disrupted the electronics market. Everyone else had to respond with better displays, store standards and such like. Some, like Best Buy, were up to that task. Many others were not and they lost out!"

Macy's and Kohl's would be especially at risk, Saunders also said; Macy's because the rollout of its new Market by Macy's concept is "behind the curve" and Kohl's because it operates in this smaller, off-mall territory.

Department stores are so vulnerable to a move like this in part because they've neglected their own merchandising strengths. Target, which Saunders believes is akin to a department store that has evolved "for the modern era," is proving that a retailer can successfully merchandise a variety of goods, the way department stores once did so well.

"Against this backdrop, Amazon's latest foray into physical retail makes more sense, especially as the shops are likely to be much smaller than the larger department stores and will be in locations with good footfall rather than in failing malls," Saunders said in a client note.