With retailers hopping on the cashier-less bandwagon in an effort to attract time-crunched shoppers, Amazon Go, the tech giant’s convenience store concept, looks to be well poised to capitalize on the trend, with sizable growth potential and appeal.
A visit to the two-and-a-half-month-old Amazon Go on California Street in San Francisco’s Financial District—one of the nine Amazon Go locations the company now has—offers some clues.
On a recent afternoon, a steady stream of shoppers, including families with kids, were observed walking in the store. While some were already pros, grabbing items they wanted and leaving right away, many others were first-time visitors. Friendly employees in orange tops patiently instructed them to download the Amazon Go app, scan the app’s QR code (Amazon calls it a “key”) at the entrance and just watch “the magic” happen, in one employee’s words.
Customers asked different questions, curious about the promise that they could simply take what they want to buy and walk out, with the system charging them for what they left with and not for what they might have picked up to look at before putting it back on the shelf
What if you put things back on the wrong shelves? No worries—even the nondescript shelves have sensors to detect such an error so you won’t be charged, an employee said. Immediately after you exit the area, itemized receipts will show up on your app in case you want to review.
How does the system work for a dad who walks in with his family? He scans each family member in on his app, and each is free to roam the 2,300-square-foot store and shop, with the system charging to the dad’s account what each ends up getting.
While retailers including 7-Eleven, Kroger and Walmart’s Sam’s Club have introduced their own checkout-free scan-and-go services, Amazon Go’s “Just Walk Out Shopping” technology has taken that convenience experience up several notches. That’s not to mention the novelty factor and the excitement for consumers experiencing some cutting-edge technologies.
“The future of grocery shopping has finally arrived and Amazon has freakin’ nailed it,” a user named Eddie S. said in a Yelp review of the San Francisco store. “This experience was truly magical and I can’t wait for this to expand to other cities!”
Amazon.com AMZN -1.65% said it spent several years developing technologies for Amazon Go before settling on the current combination of computer vision, sensor fusion and deep machine learning—technologies also used in self-driving cars. Even the many cameras overhead in the store were developed in house, the company said, declining to specify the cost.
‘The Experience Of Shoplifting—Except It’s Legal’
“Amazon Go stores could be a game changer for physical retail experience,” said RBC analyst Mark Mahaney. “Almost like the experience of shoplifting, except it’s legal, and you don’t need to hide the stuff in your jacket. … Its in-store technology enables shoppers to have a very efficient and pleasant shopping experience. … The overall opportunity is huge.”
Amazon first opened an Amazon Go location to its employees as a beta in its Seattle home market in late 2016, and it opened the store to the public in January 2018. Eight other stores followed last year, including three more in Seattle, two in San Francisco and three in Chicago. Amazon said it plans to open a fourth location in Chicago this year. It also plans to open in New York, Amazon said, declining to give more details on when or where.
Amazon is reportedly eyeing to open 3,000 Amazon Go stores by 2021 and is said to be looking at expanding the concept to London, airports and college campuses. The company declined
“It honestly lives up to the hype,” a Yelp reviewer named Monica C. said of a Chicago Amazon Go. “They have a really decent selection of items, great snacks but I like their sandwich selection the most!”
Most stores range in size from 1,200 to 2,300 square feet, but Amazon is trying out different formats: It has opened a 450-square-foot store, Amazon Go’s smallest so far, inside its office space above a Macy’s in Seattle. Imagine the flexibility and the potential to replicate that format in places where space may be tight.
Amazon declined to give any sales or traffic metrics except to say it’s “thrilled by the response” from customers in the three cities Amazon Go is in. While it had expected Go stores would be busy during meal times, Amazon told me it was surprised to see “many customers coming in for a drink or snack during non-meal specific times too—sometimes multiple times a day.”
“Went in, grabbed a croissant and was out literally (in) 17 seconds,” a review from username PhantomaZero said in Apple’s app store. “The future of retail.”
Many other reviewers echoed that sentiment. Almost all of the Go stores on Yelp get an average rating of 4 to 5 stars, and in the Apple app store, it has a 4.5-star rating, higher than even Amazon’s flagship shopping app.
“It felt like I was in the future,” a Yelp reviewer named Heather N. said of a Seattle location. “I had to check out Amazon Go while in Seattle…I looked around, picked up and put back several things before leaving. My receipt was emailed to me within minutes and was accurate…I would love for this technology to be more widely available.”
To be sure, Amazon Go has its limits. Some customers complained in reviews that the store did not have the things they wanted or that items were out of stock. For instance, at the San Francisco store, while there were bottled teas to buy, there was no tea next to the coffee in the pantry section. (An employee recommended suggesting that in the app and said local store managers regularly review what consumers want to see in stores.)
The store also doesn’t serve hot food or beverages even though customers are free to heat up its assortment of refrigerated meals, sandwiches and snacks in microwaves in the sitting area.
According to RBC’s Mahaney, who said his team of five had made multiple visits to the same Amazon Go store in San Francisco to track the number of shoppers and see what they bought, about 25 people usually show up during a non-rush hour while approximately 110 do during a rush hour. (I was there during non-rush hour and observed at least two dozen customers in just half an hour.)
Mahaney estimated each Amazon Go store can generate annual sales of $1.5 million on average based on the assumptions that its stores are open an average of 10 hours a day for about 279 days a year, customers spend an average of $10 per visit, and each store gets 400 to 700 daily visitors.
Multiply $1.5 million by that reported count of 3,000 stores by 2021, and his math would translate to a $4.5 billion annual sales opportunity for Amazon.
Costs could slow that growth: Mahaney estimated that the hardware for each store cost about $1 million on average and that it would take about two years for Amazon to break even. Still, the analyst expects Amazon will come up with “innovative ways” to cut those costs.
Amazon Go also has a growth opportunity beyond just opening more stores, Mahaney said. Selling more grocery items and other sorts of products could increase the average transaction amount. (Some locations already carry grocery items including bread, milk, meat, cheese and packaged produce like asparagus and riced cauliflower, as well as Amazon Meal Kits. The stores also feature some items from Amazon-owned Whole Foods’ 365 private-label line.)
And traffic could pick up when more people know about the stores, Mahaney said, adding that the Go technology can be used at Whole Foods locations or be licensed to other convenience stores.
“OMG Mind Blowing Shopping Experience!” a customer named Charlie Wang said in an app store review. “This is future! I can’t wait to see Amazon Go goes nationwide.”
With that kind of consumer enthusiasm, an Amazon Go opening in a city near you may be only a matter of time.
By Andria Cheng
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