Right now, Amazon's only competition in my city (in Canada) is Chapters. Chapters' only advantage is the ability to buy something online (at chapters.ca) and return it to a brick-and-mortar Chapters store if it's defect. A physical Amazon store would take care of this. Just one in each city, downtown, small, and it doesn't even have to have anything on the shelves
They could sell Kindles in the physical stores. Canadian residents have to order those from the USA and pay for shipping and customs fees, and wait a week or two for delivery, and be at home in the middle of a work day to make UPS happy. It would be quite convenient to be able to buy the Kindle locally.
They could also use physical stores for pick-up orders. Since UPS is such a pain, I'd like to be able to place an order online and pick it up at a physical store when it's ready. Future Shop or Best Buy already do this in my city, and it's very convenient.