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Amazon.com is opening a real bookstore, but why?

Amazon.com is opening a real bookstore, but why?
Amazon Books, the e-commerce giant's physical bookstore, opens Tuesday in Seattle. (Amazon)

After years of disrupting the traditional bookstore industry, Amazon.com Inc. is going to join it.

Amazon Books, the e-commerce giant's new physical bookstore, opens Tuesday morning in Seattle. In a letter posted on the company's website, Jennifer Cast, vice president of Amazon Books, said the store would be an extension of Amazon.com.

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"We’ve applied 20 years of online bookselling experience to build a store that integrates the benefits of offline and online book shopping," she said.

Books in the store will be displayed "face-out" along with the Amazon.com customer rating and a review. Devices like the Kindle, Amazon Echo, Fire TV and Fire Tablet will also be available to test in-store.

Will Amazon open more bookstores? The company isn't saying. Here are some of the industry challenges Amazon Books could face.

Declining revenue

Brick-and-mortar bookstores are continuing to struggle. Books and music retailer Borders Group Inc. shuttered its stores after filing for bankruptcy in 2011. Leading book retailer Barnes & Noble Inc. has also had to fight off intense competition from online retailers, such as Amazon.com, and small independent shops, according to an October report by market research firm IBISWorld on U.S. bookstores.

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As a whole, industry revenue is expected to decline from $18.7 billion in 2010 to $13.2 billion in 2015, according to IBISWorld.

And the future doesn't look good. IBISWorld projects that over the next five years, the bookstore industry's revenue will decline by 1.4% per year on average to $12.3 billion. During that same period, the number of bookstores is expected to drop at a rate of 2.7% each year to 20,699 establishments.

Digital competition

As e-commerce sales continue to grow, book purchases online have only increased. According to IBISWorld, readers bought 41% of new books and 67% of e-books in 2014 through Amazon alone, with other retailers like Target Corp. and Wal-Mart Stores Inc. also increasing their online book offerings.

More affordable e-readers and greater selection for e-books have also changed the bookstore landscape, though traditional print books still outsell their digital counterparts. In the first quarter of this year, e-book sales declined by 7.5% compared with the same quarter in 2014, according to IBISWorld.

Smaller rivals

The struggles of larger retailers such as Barnes & Noble are well-known, but smaller bookstores have been able to flourish despite the challenges.

With local appeal, customer loyalty and smaller capital costs, these small, independent stores are expected to "thrive" over the next five years, according to IBISWorld.

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