Retail IoT: Amazon to open 3,000 checkout-free stores | Sector analysis

Retail IoT: Amazon to open 3,000 checkout-free stores | Sector analysis

Amazon is reportedly considering a plan to open as many as 3,000 new Amazon Go cashier-less convenience stores worldwide.

The concept could see the retail and Web services giant move aggressively into bricks and mortar shopping, by disrupting the market for healthy ‘food on the run’ in city centres and transport hubs, suggests Bloomberg.

If the report is accurate, this would not only pitch Amazon against the metro-style convenience stores of brands such as Sainsbury’s, Tesco, and M&S in the UK, for example, but also cafe-style outlets, such as Pret a Manger.

Until now, it has been unclear if Amazon plans to open more real-world shops, use its cashier-less technology in the Whole Foods supermarket chain that it owns, or sell it to other retailers via Amazon Web Services (AWS).

Does ‘no checkout’ check out?

Either way, checkout-free shopping is set to boom in the next few years. Retailers are exploring a range of options, from self-scanning items via smartphone, to more complex solutions that use sensors and cameras to track shoppers’ and goods’ movements in store.

For example, Amazon’s system detects products that have been moved, places them in a virtual cart, and knows once customers have left the premises. However, the risk in any such system is the potential for losses and theft.

In either case, shoppers are billed via their smartphone and pay platform of choice, regardless of whether they’ve scanned the items themselves or the store has logged their choices for them.

Amazon unveiled its first Amazon Go cashier-less store in Seattle in 2016 and has since opened additional sites in the city, along with Chicago. Last week, it announced plans to open a branch in New York. At present, the company is using these outlets to roadtest two subtly different models: a checkout-free convenience store, and a cashier-less takeaway food outlet.

But Amazon is far from alone in examining these options. Walmart, the world’s biggest retailer, is also exploring next-generation technologies, according to a number of recent patent filings.

In August, San Francisco start-up Zippin launched what it called its “next-generation checkout-free technology”.

In order to have the ‘frictionless’ experience that Zippin believes urban customers want, users first have to download an app, which contains their store ‘key’ – in the form of a QR code – which they use to gain entry to the shop.

Overhead cameras follow customers’ movements around the store, while smart-shelf sensors identify which products are picked up – or put back – and when. Items are added to a virtual cart as well as the real-world one.

On leaving the store, shoppers get a receipt for all the purchased goods, but the system is also designed to optimise supply chain and logistics processes.

Last month, the company opened a concept branch in San Francisco’s Soma district, where it is showcasing the technology. Like Amazon, Zippin’s prime focus is convenience stores, along with fast-food restaurants.

Meanwhile on the high street…

Also in August, UK supermarket chain Sainsbury’s announced that it is trialling its own approach to checkout-free shopping in one of its London stores.

The retailer’s SmartShop app allows customers at its Clapham North tube station Local branch to use their smartphones to scan items as they pick them up, then pay for their goods using Apple Pay by scanning a QR code at the exit.

SmartShop is already supported by 68 Sainsbury’s supermarkets. However, they currently require shoppers to pay at a designated till point; the Clapham trial takes the technology one step further.

In August, Sainsbury’s revealed that there are over 100,000 SmartShop transactions and 3,000 to 4,000 new registrations every week, highlighting the enthusiasm for the app among customers for whom frictionless retail is an increasingly attractive concept.

Earlier this year, the Co-op also announced smartphone-based checkouts, using an app built on Mastercard’s ‘Masterpass’ secure mobile payments technology.

With the affordability and popularity of recent entrants, such as Lidl and Aldi, eating into the market share of the UK’s supermarket giants, high street names are having to find new ways to differentiate themselves – such as Tesco’s new brand, Jack’s.

But the real home of cashier-free convenience stores is China, where mobile wallets and apps such as WeChat are already a widely used way of paying for goods and services.

There, a number of start-ups, such as BingBox, are opening cashier-free stores countrywide. However, the technology used in many tends to be less sophisticated than Amazon’s and Zippin’s, being based less on cameras, sensors, and AI, and more on RFID tags and self-scanning by customers.

But one company plans to change all that. Chinese e-commerce giant Alibaba is blazing a trail that other retailers may follow. In 2016, its chairman Jack Ma coined the phrase ‘New Retail’ to describe a shopping experience that seamlessly blends online and offline elements.

In April this year, the company opened a grab-and-go convenience store of its own, Futuremart, at its Hangzhou HQ. The shop operates along much the same lines as Amazon Go and Zippin. And last year, it launched Tao Cafe, a cashier-free coffee shop, open to users of its Taobao e-commerce site.

But can Amazon win in the West?

Internet of Business says

Making shopping more convenient is a sound strategy to pursue, given the fast-paced lifestyles that many city-dwellers pursue, and the ‘need it now’ mentality encouraged by one-click online shopping.

However, Amazon faces the opposite challenge to the likes of Sainsbury’s and the Co-op in the UK, and Walmart, Target, and Kroger in the US. It needs to spend a vast amount of money to move into the one sector it was set up to undermine: bricks and mortar retail. Talk about squaring the circle.

Indeed, by moving en masse into main street – aka offline – one could infer that the main problem Amazon has been solving all along has been checkout queues. But can it – and should it – really do that?

According to Bloomberg, the hardware costs alone of the original Amazon Go convenience store were over $1 million. While those costs wouldn’t necessarily be replicated in each new launch, multiplying that figure by 3,000 creates a notional technology outlay of $3 billion, and that’s before the massive property, regulatory, and other costs associated with thousands of new city centre properties are even considered.

Then Amazon has to build a logistics, distribution, and delivery network to service thousands of real-world locations. A tough challenge, but Amazon is one of only two trillion-dollar companies in the world – the other being Apple.

But that’s in terms of market capitalisation, not revenues: the value of its stocks could plummet, taking Jeff Bezos’ unrivalled fortune with it (unlikely though that may seem today). In terms of real-world revenues, Walmart is far larger – than any company in the world, in fact.

In bricks and mortar retail, on the other hand, companies such as Sainsbury’s, Tesco, Aldi, and Walmart – and even those in other retail sectors, such as Walgreens and Boots – already have the physical stores and the networks to service them. But they lack the technology infrastructure to transform their businesses overnight to a cashier-less model – should they even wish to do so.

So as ever, this comes down to a clash of cultures and business models: technology and market capitalisation (bits) versus bricks and hard revenues. Place your bets please. Or as Amazon CEO Jeff Bezos said last week, “If we offer a me-too product, it’s not going to work.”

Yet the other challenge facing Amazon is much bigger but, at the same time, subtler. It takes the form of a question: What is this company, and who does it really serve?

The vast and ever-growing diversity of its business may be deeply impressive and threatening to everyone from insurers and healthcare providers to broadcasters and delivery companies, but it also reveals a company that is fast losing focus. Most companies can say exactly who they serve, together with why and how; if they can’t, they tend to go out of business.

At present, the only thing we can say with confidence is that Amazon wants to sell everything to everyone by any means necessary. But is that a good idea? And is that a tight focus on the customer, or a viewfinder set to infinity?

There’s certainly a fortune to be made in this approach to business – at least, in terms of stocks and shares at today’s values. Bezos is the world’s richest man, and his Chinese equivalent, Alibaba’s Jack Ma, is China’s.

Plus: Antitrust regulators move in

In related news, EU antitrust regulators are investigating Amazon’s third-party merchant data.

Competition commissioner Margrethe Vestager says Amazon hosts yet competes with the merchants and uses their data to help its own sales. The regulators have sent questionnaires to merchants to better understand the issue but have yet to open a formal case against the company.