Many investors still primarily view Amazon (AMZN 0.55%) as an e-commerce company. Others may see it as a cloud computing business, given that Amazon Web Services (AWS) is the company's most profitable segment.
I tend to think Amazon as an infrastructure company. The common link between e-commerce and cloud is that Amazon has built out a massive distribution and technology platform, which third parties then "plug into" and use to their great benefit.
Now, it looks as though Amazon is potentially building a third new infrastructure, with similarly scalable opportunities.
Ironically for a company thought of as an e-commerce play, this new infrastructure is for brick-and-mortar stores!
NASDAQ: AMZN
Key Data Points
Just Walk Out is sprinting ahead
Although it's been mentioned here and there for a few years, Amazon now appears to be putting its full weight behind its "Just Walk Out" technology, especially in recent months.
For those who don't know, "Just Walk Out" tech is an artificial-intelligence platform that uses sensors, cameras, and proprietary technology that allows shoppers to exit the store without having to wait in line and pay a cashier.
Amazon opened the first Amazon Go store equipped with Just Walk Out tech in 2016, at a store on its campus. The original store was just for employees, before opening to the public for the first time in 2018. Small-format Go stores now number 42 across the U.S. and U.K.
However, what may be more exciting is Amazon's new larger-format grocery stores called Amazon Fresh. Beginning in late 2020, the new grocery store format also features Just Walk Out technology on a larger scale.
As the pandemic recedes, Amazon is now stepping on the gas, opening Amazon Fresh stores at a turbo-charged rate. Amazon is set to open three new Fresh stores in just the coming days in Southern California, marking the company's 14th Fresh store in the region alone and 30th across Southern California, Washington state, Illinois, Virginia, Maryland, Washington, D.C., and Pennsylvania. Meanwhile, Amazon plans to open stores in New York and New Jersey soon as well.
Oh, and remember Whole Foods, which Amazon bought in 2017? Amazon is retrofitting some Whole Foods stores with Just Walk Out too, outfitting two stores in D.C. and Southern California with the technology in January and February.
Image source: Getty Images.
Third parties are getting on board
While the Fresh stores are interesting, what makes the Just Walk Out opportunity truly massive is if third-party retailers begin to feel they need to adopt the technology in order to remain competitive. After all, a cashier-less experience is not only faster, but lowers labor costs and generates higher throughput. Those advantages should allow Amazon, or any store that uses Just Walk Out, to price items below those operating with old-fashioned cashiers. Once this better experience takes off, it will be difficult to go back.
Just as Amazon opened up its own tech infrastructure to other companies, resulting in the juggernaut that is AWS, it is also opening its Just Walk Out tech to other retailers. Third parties that have already adopted the technology include Hudson's convenience stores, Resort World Casino in Las Vegas, and the Climate Pledge hockey arena in Seattle, among others.
However, in recent months, some even bigger brands have come on board. Late last year, Starbucks announced a concept store in New York City featuring Just Walk Out technology. Also late last year, the UK-based grocery chain Sainsbury's opened a Just-Walk Out-enabled convenience store called SmartShop Pick & Go -- the first international Just Walk Out third party store. And less than two weeks ago, the Houston Astros unveiled two different Just Walk Out shops at Minute Maid Park.
The potential is hidden
Amazon management doesn't talk about Just Walk Out very much, and I'm not even sure under which segment it groups the revenue. It could either be under the "physical stores" segment or the amorphous "other" category in its disclosures. Revenue has likely been insignificant up until this point.
And yet, it's not hard to see how Just Walk Out could be a big future business. Amazon's e-commerce business takes a cut of every transaction, and AWS "rents" its infrastructure on a per-usage basis. All payments companies, from traditional banks and credit cards to fintechs, generally operate on the same principle of taking a cut of every transaction they enable.
Most likely, Amazon will operate profitable grocery stores, due to its technology and lower prices. But if the Just Walk out tech becomes widely adopted by third parties across a big swathe of retail, whereby Amazon gets a small cut of every transaction, one can see how Just Walk Out could become a giant business.
Given the aggressive rollout in recent months, I'll be looking to see if Just Walk Out is discussed on the first quarter earnings release after the market closes on Thursday, April 28.
