Amazon (NASDAQ:AMZN) caused a splash in late 2016 when the e-commerce giant debuted its checkout-free convenience store -- Amazon Go. The futuristic shopping experience eliminates the need for cashiers, as a combination of sensors and artificial intelligence (AI) track the purchased items and the customer is charged automatically.
This may sound like the stuff of science fiction but it wasn't without glitches. The first Go store was tested on Amazon employees at its Seattle campus in 2016, and its public debut was delayed due to technical hurdles that needed to be overcome.
The company appears to have put these early issues to bed, opening the first Amazon Go location to the public in early 2018, with several other stores coming online in the months that followed. That may be just the beginning, however, as recent reports suggest that Amazon plans to open a wave of these revolutionary stores in the coming years.
The e-commerce giant is considering a variety of options with regard to its Amazon Go stores, the most ambitious of which would see as many as 3,000 of these AI-infused stores opened by 2021, according to a report by Bloomberg (subscription required). The company is considering the opening of 10 locations by the end of 2018, 50 stores in major metropolitan areas by 2019, and as many as 3,000 Amazon Go stores by 2021, according to the report.
It has long been known that Amazon targets young, affluent consumers, which was further supported by its acquisition of Whole Foods last year. The company will continue to court these time-strapped, upper-middle-class customers with its Amazon Go locations. The strategy of these cashier-less convenience stores is still being tweaked, with the size and type of items still being tested. The two most likely options being considered are a store with only fresh, prepared foods to grab and go, or one that also includes a limited selection of groceries.
Here's how it works
The concept is simple: Customers use the Go app to gain entry to the store and shop as usual. Each location is packed with a vast array of sensors, cameras, computer vision, data fusion, and deep-learning AI algorithms that detect and track items removed from the shelves and put into baskets. Once the shopping trip is completed and the customer leaves the store, they are charged via the app for the purchased items.
The first Amazon Go store opened to the public in January, with two more locations debuting in Seattle and another in Chicago. The company also announced plans to open one in New York. The existing stores come in various sizes, as the most recent shop in Seattle tops out at 3,000 square feet, compared to 1,800 square feet for the introductory location, and 1,450 square feet for the second. For comparison, the average convenience store is 2,500 square feet, while the typical grocery store in the U.S. is 45,000 square feet. The selection varies as well. Two of the shops stock only sandwiches, salads, and snacks, while the others also offer a limited selection of groceries.
The variation of store sizes and products likely signals that Amazon is working to determine the optimal layout and selection for the typical store.
Then there's the cost...
Another consideration for Amazon is the cost of these stores of the future. It's estimated that the first store was outfitted with more than $1 million in hardware, including the various cameras and sensors necessary.
Morgan Stanley analyst Brian Nowak has crunched the numbers and has come up with an estimated cost for such a venture. "We see Amazon as having to invest between $0.5 billion and $3 billion in building these 3,000 stores," Nowak wrote. "Given Amazon's need to invest in in-store automation technologies, cameras, and sensors, we would not be surprised to see the cost toward the higher end of this range."
A good deal
While the price may seem steep at first glance, the emphasis on fresh, prepared foods and the company's focus on young, affluent shoppers should change the economics of the razor-thin margins of most grocery stores.
Amazon's ultimate goal is to "build deeper, more integrated relationships with consumers," Nowak wrote. He went on the say that the data captured and the better understanding gained concerning customer motivations will "ultimately drive higher/more frequent purchase behavior."
Spending $3 billion for 3,000 locations hardly seems excessive when compared to the $13.7 billion Amazon spent on Whole Foods with 460 stores, and it gives Amazon another opportunity to interact with its core customers and capture more of their shopping dollars.