Brick and mortar retail is in trouble. With the emergence of ecommerce, stiff competition, and an increasingly fragmented market, it’s no surprise that this industry has undergone drastic declines. While technology enhancements are being introduced in all areas of retail, the real transformation lies with creating a true omnichannel experience. Omnichannel customers are more valuable, spending up to 20% more than single channel customers, yet we still see stores playing a significant role; only 12.6% of retail sales are directly transacted online .
Tech Takeover In Stores to Save the Day?
What if you could merge the convenience of online shopping with the tangibility of a B&M store? This is a thesis Amazon is testing with their new beta concept store in Seattle, Amazon Go. By introducing technology to revitalize the in-store experience, Amazon Go has become the first “Walk Out Shopping” experience. Customers simply need to download the Amazon Go app, enter the store, take products they like, and walk out . If perfected, eliminating the in-store checkout experience should make customers feel like they’re stealing.
Today’s Checkout Process and Need
Today’s checkout process in store is the source for a lot of pain for customers, and can be classified into three buckets: Traditional Point of Sale (POS), Associate mobile Checkout, and Customer Mobile Checkout (customers load cards into a retailer’s mobile app, enabling them to scan products, manage digital cart, and pay for items without interacting with store associates).
While mobile checkout has certainly improved the customer’s experience in store, checkout remains a major source of friction.
- 33% of shoppers leave a store without buying if the lines are too long 
- 50% of shoppers avoid stores with historically long lines 
- 88% of shoppers want a faster retail checkout experience 
Based on B&M retail sales of $22 Trillion and checkout costs of .04% , checkout represents an $88 Billion addressable market opportunity heading into 2020
Technology Developed to Address Need
The historical bottleneck in the checkout experience has been Automatic Identification and Data Capture (AIDC). Barcode technology, invented nearly 40 years ago, is still the most prominent AIDC mechanism in the market today . The key to unlocking a truly frictionless experience for customers will require further development of reduced touch AIDC technology. Different technology applications have attempted to make improvements in this space (see Exhibit 1) but currently only Amazon Go has demonstrated the ability to completely remove the need for checking out.
Amazon claims the experience is made possible by using the same technology as self-driving cars: a combination of computer vision, sensor fusion, and deep learning. They’ve created a patent on the Just Walk Out Technology that automatically detects when products are taken or returned to shelves, tracks them in your virtual app cart, and charges your Amazon account shortly after leaving the store .
Concerns with Megatrend
Despite the industry assumption that Amazon’s tech gives them an immediate competitive advantage, management should be concerned with the delicate nature of debuting any revolutionary technology in a physical store.
- Core competency of Amazon is tech, not retail: Entering the B&M space creates a radical departure from their current wheelhouse
- First retail play is highly visible: Messing this up would be a PR nightmare
- The store opening has already been delayed multiple times since its promised public launch in 2016, with no definitive opening date 
- Fraud concerns: Being a first mover in this space runs the risk of aggressive potential customer fraud
However, if Amazon can perfect and scale this technology, they will become the first checkoutless retailer. Known in the industry as the “category killer”, Amazon’s move into B&M should terrify traditional retailers.
Concerns and how to address them
In the short term, Amazon needs to focus on working through the technological kinks of the current beta store and open it to the public. Other retailers have already been scrutinizing the tech to find ways to replicate it, and have more user behavior information than Amazon given their lack of existing stores and reach. However, I believe the recent acquisition of Whole Foods stores may allow management to accelerate the machine learning process of their checkout technology through increased data capture  to work through some of the potential tech issues.
I would recommend that management brings in retail experts that have experience in store selection, inventory management, presentation, and general management to aid in their entrance into B&M. Additionally, they should leverage synergistic learning with Whole Foods before launching into full-scale B&M in soft-lines.
Ultimately, do we think that this technology has the potential to provide enough value in-store to reinvigorate the shopping experience? Will Amazon be the company to dominate the B&M space through superior supply chain technology? Will they eventually be the only competitor that matters?
- Forrester Data: Online Retail Forecast, 2016 To 2021 (US), Q4 2016 Update
- Amazon’s Corporate Website, Amazon Go FAQ, 2017
- Future of Self Checkout, A Landscape Study, Sutardja Center for Entrepreneurship & Technology led by Prof. Ikhlaq Sidhu at UC Berkeley, 2017
- Digimark study covering 120 global retail chains, 2017
- Business Insider, Amazon Go opening delayed, March 28th 2017
- Business Insider, Amazon is buying Whole Foods — here’s Amazon’s vision for the grocery store of the future, Jun 16th 2017
- Forrester TechRadarTM: Digital Store Operations Technology, Q3 2016 (Updated)
- The Forrester WaveTM: Point Of Service, Q3 2015
- Forrester TechRadarTM: Digital Store Customer Experience Technology, Q3 2016 (Updated)
- Forrester: Automation Technologies For Customer Engagement, Q2 2017
- Forrester: Commerce Technology Investment Trends: 2017 To 2018, Q2 2017
- Linneaus University Sweden, Master Thesis, Self-Service Technologies, What Influences Customers to Use Them, May 26th 2017