Amazon has been making big moves into automated retail stores in recent years. As one of the largest e-commerce companies, Amazon sees huge potential in leveraging automation and AI to transform the offline shopping experience. However, is investing in these automated Amazon Go and Amazon Fresh stores a wise strategy? This article will provide key insights into Amazon’s automated store investments and assess the risks and rewards involved. With Amazon’s vast resources and ambition to dominate every aspect of retail, its automated store push has enormous implications for the future of brick-and-mortar retail. Understanding Amazon’s motivations and progress so far can generate valuable perspectives for investors seeking exposure to this transformative trend.
Amazon Go’s cashierless checkout technology brings convenience but has significant limits on store sizes
Amazon Go has pioneered cashierless checkout through computer vision, sensor fusion and deep learning techniques. This enables a frictionless in-store experience without lines and checkout counters. However, the complex shelf sensors and infrastructure make Amazon Go suitable only for smaller convenience stores of around 2,000 square feet. Scaling up the format to accommodate larger supermarkets and big box retail would require major hardware innovations. Amazon Go’s appeal also relies heavily on its urban locations, with a typical store generating $1.5 million in annual sales compared to $15 million for a typical corner grocery. This limits the addressable market and investment upside of Amazon Go’s unique technology.
High setup costs and ongoing operating expenses challenge the unit economics of Amazon Go
Installing all of the cameras, shelf sensors and software for Amazon Go costs over $1 million per store. Ongoing costs are also high, with a typical Amazon Go employing 10 staff members when a standard corner store would have just 3. Combined with lower sales than mainstream stores, it’s uncertain whether Amazon Go’s futuristic shopping experience can generate strong returns on invested capital. However, as a powerful marketing tool for Amazon’s brand, it may have strategic value beyond just its own profits. Amazon could also drive down costs by opening more clustered locations to spread out infrastructure expenses.
Amazon Fresh stores expand product selection but have much room for continued automation
Amazon Fresh stores are the company’s next step towards large-format automated grocery shopping. While Amazon Go is limited to grab-and-go items, Amazon Fresh stores contain a full produce section, bakery, deli and household essentials. However, checkout still relies on cashiers, with only a limited ‘Dash Cart’ pilot removing that friction. Amazon has plenty of opportunity to incorporate more advanced computer vision, voice technology and robotics to make Amazon Fresh into a fully automated experience. Its scale, data and AI expertise suggest the company can make the model economically viable over time.
Regulatory risk around privacy and job loss is another key consideration
Expanding cashierless stores relying heavily on customer surveillance comes with privacy risks that could spur regulatory responses. Lawmakers and labor groups also have concerns around massive job loss in retail, especially post-pandemic. However, Amazon is taking steps to get ahead of these issues, including keeping humans involved in Amazon Fresh. It also has experience navigating regulatory barriers in emerging technologies. Overall, Amazon’s automated retail push will encounter challenges, but the company has the resources and strategic foresight to adapt.
Amazon’s bold investments in automated store concepts will transform offline retail shopping in coming years despite some uncertainty over their financial viability. With Amazon’s vast data and AI capabilities as well as appetite for revolutionizing markets, its automated grocery and convenience stores have potential to achieve mainstream adoption. Investors should monitor their progress closely as both a bellwether for the growth of automation in physical retail and an indicator of Amazon’s ambitions in disrupting yet another huge industry.