Assessing the Threat Level of Amazon Go, Part 1

SEATTLE — Amazon Go was recently unveiled as the online behemoth's new small-format brick-and-mortar store, much like a traditional convenience store, but with one very attractive key feature — no waiting on a checkout line. In fact, there is no checkout at all.

How does the Amazon Go shopping experience work? Basically, it’s three steps: the shopper scans in using a smartphone, passing a turnstile to enter the shopping area; the shopper picks up their items, which Amazon technology adds to the shopper's cart; and then the shopper leaves the store, charged for the items via their Amazon account.

"Our checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, sensor fusion, and deep learning," Amazon explains on its website. "Our Just Walk Out Technology automatically detects when products are taken from or returned to the shelves and keeps track of them in a virtual cart. When you're done shopping, you can just leave the store. Shortly after, we'll charge your Amazon account and send you a receipt."

Amazon Go is currently a one-store "beta" format in Seattle, open only to Amazon employees. The company has indicated it will open this Amazon Go store to the public in "early 2017."

Retail industry and technology industry experts expect there will be a number of challenges for Amazon Go to overcome (Part 2 of this series), but Amazon also has many things working in its favor as it steps over the "brick" line — and this has a lot of companies in the retail marketplace (convenience store operators included) watching and, in some cases, worried.

"More than any other company, Amazon is committed to topline growth, expansion and customer experience, rather than bottom-line profits, though that is expected to change over the next three to five years," said Brian Cohen, executive vice president, group director, and head of digital integration for marketing agency Catapult, based in Westport, Conn. "For now, this allows for a higher level of investment in innovation, market expansion, and vertical expansion. It makes them a very, very scary proposition for a large number of industries; retail being the most obvious."

Other Amazon advantages include:

Brand Name

Amazon is thought of as reliable, trustworthy and easy, noted Don Stuart, managing partner of Wilton, Conn.-based Cadent Consulting Group. Amazon already dominates the digital space of "convenient shopping," so its physical stores should carry the same perception by shoppers, added Maxwell Legocki, business analyst at Cadent Consulting. "This will help promote the Amazon name among shoppers who don’t use ecommerce as much."

Fewer Ongoing Costs/Lower Prices

Amazon Go store management will save money on salaries they don't have to pay, as opposed a traditional store, Stuart pointed out. "Those savings, coupled with the remarkable supply chain they have at their disposal, can create huge savings," he said. "Being able to lower costs offers the opportunity for Amazon Go to lower prices, attracting even more shoppers while increasing margins."

Customer Convenience

Cosmas Wong, an advisor for technology startups and CEO of New York City-based Grey Jean Technologies, cites the ability to "Amazonize" the shopping experience by putting customer convenience above all else. "They’ve done this for decades in the ecommerce space, and a physical store is just an extension of that," said Wong. "With Amazon Go, they're offering shoppers the ability to walk into a physical store and walk out with the same immediacy of Amazon's one-click checkout online, with no lines and no wait. It's the same seamless customer experience."

Loyalty

Amazon has "maybe the most loyal customer base of any retail entity out there," according to Mark Hardy, CEO of Chicago-based InContext Solutions, a virtual reality solutions provider for retailers like 7-Eleven and Walgreens. "Consumers are already familiar with Amazon's mobile apps; they know they can count on the customer service; and they trust the speed and accuracy of Amazon's ecommerce and delivery services. They will expect no different from Amazon Go stores."

Prime Member Data

With so much data on hand, Amazon has "a real opportunity to provide personalized experiences for each shopper via targeted email and loyalty programs through Amazon Prime members' accounts," said Guy Amisano, CEO of Salient Management Co., a data analytics provider for convenience and grocery stores, based in Horseheads, N.Y. "These kinds of tactics are sure to bring customers in the door."

Seemingly Unlimited Resources (technology and otherwise)

There are no legacy environments hampering innovation at Amazon Go, according to Bridget Johns, head of marketing and customer experience for RetailNext, based in San Jose, Calif. "They can build the model from scratch to optimize the existing technologies that power Amazon Go, like video analytics, Wi-Fi, RFID and others. And they can invest heavily in what will be needed for future rollouts, namely deep learning, artificial intelligence, and more precise measurement of item-level RFID solutions," she stated. "Amazon also has an unbelievable amount of data that will help it scale a concept like this faster than most would be able to, not to mention the cash to acquire an existing player if its model makes more sense."

Return to CSNews.com tomorrow for Part 2 of this series, discussing Amazon Go’s disadvantages.