Amazon.com (NASDAQ:AMZN) plans to flood the country with up to 3,000 Amazon Go cashierless convenience stores by 2021. If the performance of the first half-dozen are any indication, they could radically alter the retail landscape.
An analysis by the data analytics firm Brick Meets Click of the first Amazon Go store -- which opened in Seattle in January -- reveals a productivity sensation on steroids. Based on customer activity over several days, it estimated that this Amazon Go store generates $2,700 in annual sales per square foot of selling space: a figure surpassed only by Apple (NASDAQ:AAPL) and a select handful of other specialty retailers.
What's even more remarkable is that it's early days for the new concept store, so consumers may not be fully aware of its existence or how it operates. Brick Meets Click believes that as more customers become aware of Amazon Go's convenience -- and as Amazon fine-tunes its operations -- the productivity of each location should rise even higher.
A well-oiled machine
Amazon Go is a unique store. After downloading the Amazon app to your smartphone, the app is activated upon entering the store, which then becomes aware of your movements throughout the space, knowing what you pick up and put down. There's no need to interact with a human; you pocket whatever item you want, and through a dizzying array of cameras, sensors, artificial intelligence, and machine learning, the Amazon Go store knows what you've selected and charges your Amazon account accordingly.
The store is more convenience store than supermarket, with most of those currently operating doing so only on weekdays, catering primarily to the grab-and-go lunchtime crowds. The laser-like focus on this specific customer niche also makes Amazon Go a highly efficient retail operation. Brick Meets Click estimates that the Seattle store is generating about 50 inventory turns per year, or some four to five times the number of turns a typical retail operation can produce.
Apple is one of the only companies that has been able to top this level of retail store performance. According to eMarketer, Apple stores average over $5,600 in annual sales per square foot, about $1,000 per square foot more than what they achieved five years ago, while Gartner says Apple achieved over 60 inventory turns in 2017, giving it "one of the best managed supply chains in the industry."
These are amazing numbers to be sure, but when you consider that Apple is selling $1,000 iPhones, and MacBooks and iMacs ranging from $1,000 to $5,000 -- while Amazon is selling perishable food items for a few dollars each -- the achievement of the Amazon Go store is all the more remarkable.
Hard to catch
Even if the early success of the Seattle store is not fully transferable to other locations, Amazon is still achieving levels of productivity and efficiency far beyond any of the competition. And though convenience stores likely have the most to fear from this new store format, grocery stores also face a threat they can't ignore.
Amazon Go stores carry a wide selection of ready-to-eat and ready-to-cook food options that, while catering to the lunchtime needs of consumers, also could challenge grocery stores and even restaurants for dinner meal preparation.
Certainly, other retailers will begin exploring cashierless store formats. For example, Walmart recently announced that it is experimenting with a similar concept for a Sam's Club store using scan-and-go technology. This could eventually diminish the returns Amazon.com is experiencing in the early going, but for now there is no direct competition -- and the head start in learning that the e-commerce giant is gaining means Amazon Go could be a significant profit contributor in the future.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Apple and is long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.