{"id":35050,"date":"2018-11-13T19:54:22","date_gmt":"2018-11-14T00:54:22","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/amazon-go-the-future-of-retail\/"},"modified":"2018-11-13T19:54:22","modified_gmt":"2018-11-14T00:54:22","slug":"amazon-go-the-future-of-retail","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/amazon-go-the-future-of-retail\/","title":{"rendered":"Amazon Go: The Future of Retail?"},"content":{"rendered":"

Since its founding in 1994, Amazon has enjoyed infamy as the ultimate disruptor of traditional retail. However, in January 2018, the e-commerce giant took its first steps toward reinventing the brick-and-mortar shopping experience, launching Amazon Go, a physical \u201cstore of the future,\u201d to consumers in Seattle.<\/p>\n

As the largest e-commerce player in the U.S., Amazon has leveraged its scale and vast accumulation of data to identify user behaviors and engage in constant optimization, creating a nearly frictionless shopping experience. Amazon Go approximates a physical manifestation of essentially the same concept: sensors in the store recognize a customer upon entering the door, log every item they put in their \u201cvirtual basket\u201d (and accounts for those they put back on the shelf), and automatically charge their Amazon Prime account when they walk out, entirely eliminating the need for checkout lines or cashiers. [1]<\/p>\n

The stores leverage what Amazon has dubbed \u201cJust Walk Out\u201d technology: with the help of computer vision, sensor fusion, and machine learning, customers are able to make purchases without a cashier. [2] Figures 1 and 2 demonstrate how the technology aggregates data from multiple sensors to ensure that it accurately and reliably tracks a specific user\u2019s movements. Sensors also leverage a customer\u2019s past purchase data to confirm that they are correctly identifying the items picked. For example, if the inventory management system is unable to discern whether the customer picked a bottle of ketchup or a bottle of mustard, it will reference that user\u2019s purchase history to determine which of the two is more probable. [3] Similarly, the system will consider the contents of the user\u2019s existing basket to determine likely product adjacencies. [4]<\/p>\n

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Amazon\u2019s use of deep learning algorithms to develop its \u201cJust Walk Out\u201d technology has a number of implications for both product development and process improvement. At a high-level, Amazon is pursuing an omnichannel strategy and developing an entirely new type of shopping experience by reproducing its online competitive advantage \u2013 the ability to accumulate and exploit data \u2013 in brick-and-mortar retail. As a result, the company has been able to optimize productivity while minimizing traditional operating costs. After conducting an analysis of customer activity at Amazon Go\u2019s flagship store over several days, data analytics firm Brick Meets Click estimates that the store generates $2,700 in annual sales per square foot of selling space, with an average of 50 inventory turns per year. This extremely high sales per square foot metric, matched only by Apple and a few other specialty retailers, demonstrates just how effectively Amazon has maximized customer throughput and sales by removing traditional retail\u2019s most pervasive bottleneck: the checkout line. [7] All the while, Amazon has virtually eliminated the cost of checkout personnel.<\/p>\n

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In the short term, Amazon plans to build as many as 3,000 cashier-less stores by 2021, targeting dense urban metros with young professional populations. CEO Jeff Bezos has reportedly expressed interest in targeting the fast casual and quick service restaurant space, where long lines at highly-trafficked meal times abound. [9] Many predict that Amazon will also couple the \u201cJust Walk Out\u201d technology used in its own stores with its high-profile acquisition of Whole Foods, potentially leveraging the learnings from Amazon Go to optimize the grocer\u2019s 450+ retail outlets. [10] Moreover, the technology has significant long-term implications on Amazon\u2019s ability to accelerate data capture and more accurately predict user demand, which could ultimately increase the overall efficiency of its supply chain and distribution across all of its channels. [11]<\/p>\n

However, despite the operational efficiencies achieved by eliminating checkout lines and cashiers, the cost of opening a single Amazon Go location remains extremely high. Bloomberg reports that the Seattle flagship required a $1 million outlay in hardware alone. [12] In addition, the potential impact on the 3.5 million cashiers employed in the U.S. remains an open question. [13] One key consideration for Amazon is how it can explore job creation in the sector by focusing on new skill development.<\/p>\n

The advent of Amazon\u2019s cashier-less stores also raises a fundamental question about the offline shopping experience: are consumers really willing to sacrifice face-to-face interaction in brick-and-mortar retail? In a survey of 1,000 U.S. consumers, 30% of Baby Boomers expressed unwillingness to try Amazon Go, and 20% of respondents felt that they would be \u201closing out on something\u201d by foregoing a traditional store. Similarly, when asked to identify the biggest deterrent for shopping at Amazon Go, 24% cited the lack of social interaction. [14] As Amazon continues to iterate on its store technology, it should also consider how it can preserve the more social aspects of traditional retail.<\/p>\n

Questions<\/strong><\/p>\n